The board of First United Corporation (NASDAQ:FUNC) has announced that it will pay a dividend of $0.15 per share on the 1st of November. Based on this payment, the dividend yield will be 3.6%, which is fairly typical for the industry.
First United's Payment Expected To Have Solid Earnings Coverage
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.
First United has a short history of paying out dividends, with its current track record at only 4 years. While it has a shorter history of paying out dividends, First United's payout ratio of 17% is a great sign for current shareholders, as this means that earnings greatly cover dividends.
If the trend of the last few years continues, EPS will grow by 29.0% over the next 12 months. If the dividend continues along recent trends, we estimate the future payout ratio will be 17%, which is in the range that makes us comfortable with the sustainability of the dividend.
First United Is Still Building Its Track Record
The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. Since 2018, the annual payment back then was $0.36, compared to the most recent full-year payment of $0.60. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. 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
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. First United has seen EPS rising for the last five years, at 29% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
First United Looks Like A Great Dividend Stock
Overall, we like to see the dividend staying consistent, and we think First United might even raise payments in the future. 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 of these factors considered, we think this has solid potential as a dividend stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for First United that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.
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