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United Bancorp, Inc. (NASDAQ:UBCP) will increase its dividend from last year's comparable payment on the 20th of December to $0.18. This will take the dividend yield to an attractive 6.6%, providing a nice boost to shareholder returns.
Check out our latest analysis for United Bancorp
United Bancorp's Earnings Will Easily Cover The Distributions
A big dividend yield for a few years doesn't mean much if it can't be sustained.
United Bancorp has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but United Bancorp's payout ratio of 51% is a good sign as this means that earnings decently cover dividends.
Over the next 3 years, EPS is forecast to expand by 37.4%. Analysts forecast the future payout ratio could be 41% over the same time horizon, which is a number we think the company can maintain.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $0.32 in 2014, and the most recent fiscal year payment was $0.86. This means that it has been growing its distributions at 10% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Has Growth Potential
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. United Bancorp has impressed us by growing EPS at 5.5% per year over the past five years. The company is paying a reasonable amount of earnings to shareholders, and is growing earnings at a decent rate so we think it could be a decent dividend stock.
In Summary
Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for United Bancorp that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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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.