Why It Might Not Make Sense To Buy S&T Bancorp, Inc. (NASDAQ:STBA) For Its Upcoming Dividend

S&T Bancorp, Inc. (NASDAQ:STBA) stock is about to trade ex-dividend in 4 days. Ex-dividend means that investors that purchase the stock on or after the 10th of February will not receive this dividend, which will be paid on the 25th of February.

S&T Bancorp's next dividend payment will be US$0.28 per share. Last year, in total, the company distributed US$1.12 to shareholders. Based on the last year's worth of payments, S&T Bancorp stock has a trailing yield of around 4.1% on the current share price of $27.65. If you buy this business for its dividend, you should have an idea of whether S&T Bancorp's dividend is reliable and sustainable. So we need to investigate whether S&T Bancorp can afford its dividend, and if the dividend could grow.

See our latest analysis for S&T Bancorp

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. S&T Bancorp paid out a disturbingly high 208% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. 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 discomforted by S&T Bancorp's 23% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. S&T Bancorp has delivered an average of 6.4% per year annual increase in its dividend, based on the past 10 years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. S&T Bancorp is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.

Final Takeaway

Should investors buy S&T Bancorp for the upcoming dividend? Not only are earnings per share shrinking, but S&T Bancorp is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. S&T Bancorp doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of S&T Bancorp don't faze you, it's worth being mindful of the risks involved with this business. For example - S&T Bancorp has 3 warning signs we think you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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