Sandy Spring Bancorp, Inc. (NASDAQ:SASR) stock is about to trade ex-dividend in 3 days time. Investors can purchase shares before the 13th of August in order to be eligible for this dividend, which will be paid on the 21st of August.
Sandy Spring Bancorp's upcoming dividend is US$0.30 a share, following on from the last 12 months, when the company distributed a total of US$1.20 per share to shareholders. Based on the last year's worth of payments, Sandy Spring Bancorp stock has a trailing yield of around 3.5% on the current share price of $34.73. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Sandy Spring Bancorp can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Sandy Spring Bancorp paying out a modest 36% of its earnings.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Sandy Spring Bancorp's earnings per share have been growing at 12% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, Sandy Spring Bancorp has lifted its dividend by approximately 2.3% a year on average. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
From a dividend perspective, should investors buy or avoid Sandy Spring Bancorp? Companies like Sandy Spring Bancorp that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating Sandy Spring Bancorp more closely.
Wondering what the future holds for Sandy Spring Bancorp? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.