United Community Banks (NASDAQ:UCBI) Will Pay A Larger Dividend Than Last Year At US$0.21

The board of United Community Banks, Inc. (NASDAQ:UCBI) has announced that it will be increasing its dividend on the 5th of April to US$0.21. This takes the annual payment to 2.1% of the current stock price, which is about average for the industry.

See our latest analysis for United Community Banks

United Community Banks' Earnings Easily Cover the Distributions

We aren't too impressed by dividend yields unless they can be sustained over time. Before making this announcement, United Community Banks was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

EPS is set to fall by 18.0% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 48%, which we are pretty comfortable with and we think is feasible on an earnings basis.

United Community Banks Is Still Building Its Track Record

It is great to see that United Community Banks has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The first annual payment during the last 8 years was US$0.12 in 2014, and the most recent fiscal year payment was US$0.84. This means that it has been growing its distributions at 28% per annum 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.

The Dividend Looks Likely To Grow

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 impressed us by growing EPS at 12% per year over the past five years. United Community Banks definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We'd also point out that United Community Banks has issued stock equal to 22% of shares outstanding. 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.

United Community Banks Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for United Community Banks that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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