Is South State Corporation (NASDAQ:SSB) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a stock for its dividend and lose money because the share price falls by more than they earned in dividend payments.
A 2.3% yield is nothing to get excited about, but investors probably think the long payment history suggests South State has some staying power. The company also returned around 0.6% of its market capitalisation to shareholders in the form of stock buybacks over the past year. When buying stocks for their dividends, you should always run through the checks below, to see if the dividend looks sustainable.
Dividends are usually paid out of company earnings. If a company is paying more than it earns, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. In the last year, South State paid out 85% of its profit as dividends. Paying out a majority of its earnings limits the amount that can be reinvested in the business. This may indicate a commitment to paying a dividend, or a dearth of investment opportunities.
Consider getting our latest analysis on South State's financial position here.
One of the major risks of relying on dividend income, is the potential for a company to struggle financially and cut its dividend. Not only is your income cut, but the value of your investment declines as well - nasty. For the purpose of this article, we only scrutinise the last decade of South State's dividend payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past 10-year period, the first annual payment was US$0.7 in 2011, compared to US$1.9 last year. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time.
It's rare to find a company that has grown its dividends rapidly over 10 years and not had any notable cuts, but South State has done it, which we really like.
Dividend Growth Potential
Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Over the past five years, it looks as though South State's EPS have declined at around 12% a year. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and South State's earnings per share, which support the dividend, have been anything but stable.
Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. South State's payout ratio is within normal bounds. Second, earnings per share have actually shrunk, but at least the dividends have been relatively stable. South State might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come accross 4 warning signs for South State you should be aware of, and 1 of them is potentially serious.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
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What are the risks and opportunities for SouthState?
Trading at 44.4% below our estimate of its fair value
Earnings are forecast to grow 9.76% per year
Earnings have grown 33.5% per year over the past 5 years
Shareholders have been diluted in the past year
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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SouthState Corporation operates as the bank holding company for SouthState Bank, National Association that provides a range of banking services and products to individuals and companies.
Flawless balance sheet established dividend payer.