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Secure Trust Bank PLC (LON:STB) has announced that it will be increasing its dividend from last year's comparable payment on the 22nd of May to £0.225. Based on this payment, the dividend yield for the company will be 6.1%, which is fairly typical 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 55% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Secure Trust Bank'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.
Secure Trust Bank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. 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. In addtion, they also estimate the future payout ratio could reach 11% in the same time period, which we would be comfortable to see continuing.
See our latest analysis for Secure Trust Bank
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. The annual payment during the last 10 years was £0.68 in 2015, and the most recent fiscal year payment was £0.338. This works out to be a decline of approximately 6.8% per year over that time. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
Dividend Growth Is Doubtful
With a relatively unstable dividend, and a poor history of shrinking dividends, it's even more important to see if EPS is growing. Over the past five years, it looks as though Secure Trust Bank's EPS has declined at around 9.3% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. 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
Overall, we always like to see the dividend being raised, but we don't think Secure Trust Bank will make a great income stock. The company hasn't been paying a very consistent dividend over time, despite only paying out a small portion of earnings. This company is not in the top tier of income providing stocks.