Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Signature Bank (NASDAQ:SBNY) is about to trade ex-dividend in the next four days. If you purchase the stock on or after the 30th of October, you won't be eligible to receive this dividend, when it is paid on the 13th of November.
Signature Bank's next dividend payment will be US$0.56 per share, on the back of last year when the company paid a total of US$2.24 to shareholders. Looking at the last 12 months of distributions, Signature Bank has a trailing yield of approximately 2.6% on its current stock price of $84.57. If you buy this business for its dividend, you should have an idea of whether Signature Bank's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Signature Bank has a low and conservative payout ratio of just 23% of its income after tax.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Signature Bank earnings per share are up 9.6% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the Signature Bank dividends are largely the same as they were two years ago.
The Bottom Line
Should investors buy Signature Bank for the upcoming dividend? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. In summary, Signature Bank appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
While it's tempting to invest in Signature Bank for the dividends alone, you should always be mindful of the risks involved. For example - Signature Bank has 2 warning signs we think you should be aware of.
If you're in the market for dividend stocks, we recommend checking our list of top 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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