Shore Bancshares (NASDAQ:SHBI) Is Paying Out A Dividend Of $0.12

Shore Bancshares, Inc.'s (NASDAQ:SHBI) investors are due to receive a payment of $0.12 per share on 31st of May. Based on this payment, the dividend yield on the company's stock will be 4.3%, which is an attractive boost to shareholder returns.

See our latest analysis for Shore Bancshares

Shore Bancshares' Earnings Will Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Having paid out dividends for 9 years, Shore Bancshares has a good history of paying out a part of its earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Shore Bancshares' last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This value is at an alarming sign that could mean that Shore Bancshares' dividend at its current rate may no longer be sustainable for longer.

EPS is set to grow by 56.4% over the next year. Assuming the dividend continues along recent trends, our estimates say the future payout ratio could reach 92% - on the higher side, but we wouldn't necessarily say this is unsustainable.

Shore Bancshares Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from an annual total of $0.08 in 2015 to the most recent total annual payment of $0.48. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Over the past five years, it looks as though Shore Bancshares' EPS has declined at around 21% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

We should note that Shore Bancshares has issued stock equal to 67% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Shore Bancshares' payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 4 warning signs for Shore Bancshares you should be aware of, and 1 of them is concerning. Is Shore Bancshares not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.