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Is It Smart To Buy Shore Bancshares, Inc. (NASDAQ:SHBI) Before It Goes Ex-Dividend?

Simply Wall St

Readers hoping to buy Shore Bancshares, Inc. (NASDAQ:SHBI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 15th of August to receive the dividend, which will be paid on the 30th of August.

Shore Bancshares's upcoming dividend is US$0.10 a share, following on from the last 12 months, when the company distributed a total of US$0.40 per share to shareholders. Based on the last year's worth of payments, Shore Bancshares stock has a trailing yield of around 2.6% on the current share price of $15.61. 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 Shore Bancshares can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Shore Bancshares

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Shore Bancshares's payout ratio is modest, at just 29% of profit.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:SHBI Historical Dividend Yield, August 12th 2019

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Shore Bancshares has grown its earnings rapidly, up 30% 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. Shore Bancshares's dividend payments per share have declined at 4.6% per year on average over the past 10 years, which is uninspiring. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.

Final Takeaway

Is Shore Bancshares an attractive dividend stock, or better left on the shelf? Companies like Shore Bancshares 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. Shore Bancshares ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

Wondering what the future holds for Shore Bancshares? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.