First United’s (NASDAQ:FUNC) Dividend Will Be Increased To $0.26

The board of First United Corporation (NASDAQ:FUNC) has announced that the dividend on 3rd of November will be increased to $0.26, which will be 18% higher than last year’s payment of $0.22 which covered the same period. This takes the annual payment to 2.3% of the current stock price, which unfortunately is below what the industry is paying.

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While yield is important, another factor to consider about a company’s dividend is whether the current payout levels are feasible.

First United has established itself as a dividend paying company, given its 7-year history of distributing earnings to shareholders. While past data isn’t a guarantee for the future, First United’s latest earnings report puts its payout ratio at 24%, showing that the company can pay out its dividends comfortably.

Looking forward, earnings per share is forecast to rise by 8.2% over the next year. Assuming the dividend continues along recent trends, we think the future payout ratio could be 27% by next year, which is in a pretty sustainable range.

See our latest analysis for First United

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The annual payment during the last 7 years was $0.36 in 2018, and the most recent fiscal year payment was $0.88. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn’t be inclined to rely on it until a longer track record can be developed.

Investors could be attracted to the stock based on the quality of its payment history. First United has seen EPS rising for the last five years, at 17% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for First United’s prospects of growing its dividend payments in the future.

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 in all, this checks a lot of the boxes we look for when choosing an income stock.

It’s important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we’ve picked out 1 warning sign for First United that investors should take into consideration. 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.