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Secure Trust Bank PLC (LON:STB) will increase its dividend from last year's comparable payment on the 22nd of May to £0.225. This takes the annual payment to 5.8% of the current stock price, which is about average for the industry.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Secure Trust Bank's stock price has increased by 63% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
View our latest analysis for Secure Trust Bank
Secure Trust Bank's Dividend Forecasted To Be Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable.
Secure Trust Bank has a long history of paying out dividends, with its current track record at a minimum of 10 years. Based on Secure Trust Bank's last earnings report, the payout ratio is at a decent 33%, meaning that the company is able to pay out its dividend with a bit of room to spare.
According to analysts, EPS should be several times higher in the next 3 years. They also estimate that the future payout ratio will be 11% in the same time horizon, so there isn't too much pressure on the dividend.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2015, the dividend has gone from £0.62 total annually to £0.338. The dividend has shrunk at around 5.9% a year during that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth May Be Hard To Come By
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Secure Trust Bank has seen earnings per share falling at 9.3% per year over the last five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Secure Trust Bank's payments are rock solid. While Secure Trust Bank is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think Secure Trust Bank is a great stock to add to your portfolio if income is your focus.