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United Community Banks, Inc. (NYSE:UCB) will pay a dividend of $0.24 on the 4th of April. This means that the annual payment will be 3.0% of the current stock price, which is in line with the average for the industry.
See our latest analysis for United Community Banks
United Community Banks' Payment Expected To Have Solid Earnings Coverage
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.
Having distributed dividends for at least 10 years, United Community Banks has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but United Community Banks' payout ratio of 46% is a good sign as this means that earnings decently cover dividends.
The next 3 years are set to see EPS grow by 46.4%. The future payout ratio could be 37% over that time period, according to analyst estimates, which is a good look for the future of the dividend.
United Community Banks Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.12 in 2015, and the most recent fiscal year payment was $0.96. This implies that the company grew its distributions at a yearly rate of about 23% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend's Growth Prospects Are Limited
The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. In the last five years, United Community Banks' earnings per share has shrunk at approximately 2.4% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
In Summary
Overall, a consistent dividend is a good thing, and we think that United Community Banks has the ability to continue this into the future. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Given that earnings are not growing, the dividend does not look nearly so attractive. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.