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The board of United Bancshares, Inc. (NASDAQ:UBOH) has announced that the dividend on 15th of March will be increased to US$0.21, which will be 31% higher than last year. Based on the announced payment, the dividend yield for the company will be 2.5%, which is fairly typical for the industry.
Check out our latest analysis for United Bancshares
United Bancshares' Dividend Is Well Covered By Earnings
Unless the payments are sustainable, the dividend yield doesn't mean too much. However, prior to this announcement, United Bancshares' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share could rise by 19.8% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 17% by next year, which we think can be pretty sustainable going forward.
United Bancshares' Dividend Has Lacked Consistency
Looking back, United Bancshares' dividend hasn't been particularly consistent. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2013, the dividend has gone from US$0.20 to US$0.73. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. United Bancshares has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. United Bancshares has seen EPS rising for the last five years, at 20% per annum. United Bancshares definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
United Bancshares Looks Like A Great Dividend Stock
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for United Bancshares 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 performing dividend stock.
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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.