First United Corporation (NASDAQ:FUNC) stock is about to trade ex-dividend in 4 days. Ex-dividend means that investors that purchase the stock on or after the 16th of July will not receive this dividend, which will be paid on the 3rd of August.
First United's next dividend payment will be US$0.13 per share, and in the last 12 months, the company paid a total of US$0.52 per share. Based on the last year's worth of payments, First United has a trailing yield of 4.5% on the current stock price of $11.61. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether First United can afford its dividend, and if the dividend could grow.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. First United paid out a comfortable 29% of its profit last year.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see First United has grown its earnings rapidly, up 28% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. First United has seen its dividend decline 4.2% per annum on average over the past ten years, which is not great to see. It's unusual to see earnings per share increasing at the same time as dividends per share have been in decline. We'd hope it's because the company is reinvesting heavily in its business, but it could also suggest business is lumpy.
To Sum It Up
Should investors buy First United for the upcoming dividend? Companies like First United that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. First United ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
So while First United looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 3 warning signs for First United and you should be aware of them before buying any shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
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