Here's What We Like About Summit Financial Group's (NASDAQ:SMMF) Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Summit Financial Group, Inc. (NASDAQ:SMMF) is about to go ex-dividend in just four days. Ex-dividend means that investors that purchase the stock on or after the 12th of March will not receive this dividend, which will be paid on the 31st of March.

Summit Financial Group's next dividend payment will be US$0.17 per share. Last year, in total, the company distributed US$0.68 to shareholders. Last year's total dividend payments show that Summit Financial Group has a trailing yield of 2.7% on the current share price of $25. If you buy this business for its dividend, you should have an idea of whether Summit Financial Group's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for Summit Financial Group

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Summit Financial Group paid out a comfortable 28% of its profit last year.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Summit Financial Group, with earnings per share up 9.1% on average over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last six years, Summit Financial Group has lifted its dividend by approximately 13% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Has Summit Financial Group got what it takes to maintain its dividend payments? Summit Financial Group has seen its earnings per share grow slowly in recent years, and the company reinvests more than half of its profits in the business, which generally bodes well for its future prospects. Summit Financial Group 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.

While it's tempting to invest in Summit Financial Group for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for Summit Financial Group and you should be aware of them before buying any shares.

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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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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