Unity Bancorp's (NASDAQ:UNTY) Dividend Will Be Increased To US$0.11

The board of Unity Bancorp, Inc. (NASDAQ:UNTY) has announced that it will be increasing its dividend on the 24th of June to US$0.11. Even though the dividend went up, the yield is still quite low at only 1.4%.

View our latest analysis for Unity Bancorp

Unity Bancorp's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, Unity Bancorp was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 0.6%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 13%, which is comfortable for the company to continue in the future.

Unity Bancorp Doesn't Have A Long Payment History

Unity Bancorp's 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. Since 2013, the first annual payment was US$0.036, compared to the most recent full-year payment of US$0.44. This implies that the company grew its distributions at a yearly rate of about 32% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Unity Bancorp has grown earnings per share at 23% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

We Really Like Unity Bancorp's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income 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. For instance, we've picked out 1 warning sign for Unity Bancorp that investors should take into consideration. Is Unity Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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