It looks like SmartFinancial, Inc. (NASDAQ:SMBK) is about to go ex-dividend in the next 3 days. If you purchase the stock on or after the 11th of February, you won't be eligible to receive this dividend, when it is paid on the 1st of March.
SmartFinancial's next dividend payment will be US$0.06 per share, and in the last 12 months, the company paid a total of US$0.24 per share. Based on the last year's worth of payments, SmartFinancial stock has a trailing yield of around 1.1% on the current share price of $20.99. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether SmartFinancial can afford its dividend, and if the dividend could grow.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. SmartFinancial is paying out just 12% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see SmartFinancial's earnings have been skyrocketing, up 36% per annum for the past five years.
Given that SmartFinancial has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
From a dividend perspective, should investors buy or avoid SmartFinancial? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. SmartFinancial ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 2 warning signs with SmartFinancial and understanding them should be part of your investment process.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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What are the risks and opportunities for SmartFinancial?
Trading at 40% below our estimate of its fair value
Earnings are forecast to grow 4.5% per year
Earnings grew by 23.7% over the past year
No risks detected for SMBK from our risks checks.
This article by Simply Wall St is general in nature. 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.
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