United Community Banks (NASDAQ:UCBI) Is Increasing Its Dividend To $0.22

United Community Banks, Inc. (NASDAQ:UCBI) will increase its dividend from last year's comparable payment on the 5th of October to $0.22. This takes the annual payment to 2.6% of the current stock price, which is about average for the industry.

View our latest analysis for United Community Banks

United Community Banks' Payment Expected To Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time.

Having paid out dividends for 8 years, United Community Banks has a good history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but United Community Banks' payout ratio of 34% is a good sign for current shareholders as this means that earnings decently cover dividends.

Over the next 3 years, EPS is forecast to expand by 41.4%. Analysts forecast the future payout ratio could be 27% over the same time horizon, which is a number we think the company can maintain.

United Community Banks Doesn't Have A Long Payment History

United Community Banks' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from an annual total of $0.12 in 2014 to the most recent total annual payment of $0.88. This works out to be a compound annual growth rate (CAGR) of approximately 28% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

We Could See United Community Banks' Dividend Growing

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. United Community Banks has seen EPS rising for the last five years, at 8.4% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

An additional note is that the company has been raising capital by issuing stock equal to 22% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

We Really Like United Community Banks' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for United Community Banks that investors should take into consideration. Is United Community Banks 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.