Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Historically, Shore Bancshares, Inc. (NASDAQ:SHBI) has paid dividends to shareholders, and these days it yields 2.4%. Does Shore Bancshares tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 checks you should do on a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is it paying an annual yield above 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does Shore Bancshares pass our checks?
The company currently pays out 24% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. Going forward, analysts expect SHBI’s payout to increase to 28% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 2.5%. Furthermore, EPS should increase to $1.49. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. The reality facing SHBI investors is that whilst it has continued to pay shareholders dividend, dividends are lower today, than they were a decade ago. However, income investors that value stability over growth may still find SHBI appealing.
In terms of its peers, Shore Bancshares has a yield of 2.4%, which is on the low-side for Banks stocks.
Taking into account the dividend metrics, Shore Bancshares ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. I’ve put together three essential factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for SHBI’s future growth? Take a look at our free research report of analyst consensus for SHBI’s outlook.
- Valuation: What is SHBI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SHBI is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.