Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Stellar Bancorp, Inc. (NYSE:STEL) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company’s books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company’s books on the record date. Thus, you can purchase Stellar Bancorp’s shares before the 13th of September in order to receive the dividend, which the company will pay on the 30th of September.
The company’s upcoming dividend is US$0.13 a share, following on from the last 12 months, when the company distributed a total of US$0.52 per share to shareholders. Calculating the last year’s worth of payments shows that Stellar Bancorp has a trailing yield of 2.0% on the current share price of US$26.14. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Stellar Bancorp
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Stellar Bancorp is paying out just 24% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
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.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That’s why it’s not ideal to see Stellar Bancorp’s earnings per share have been shrinking at 2.4% a year over the previous five years.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. Stellar Bancorp has delivered an average of 5.4% per year annual increase in its dividend, based on the past five years of dividend payments.
To Sum It Up
Is Stellar Bancorp an attractive dividend stock, or better left on the shelf? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.
With that being said, if dividends aren’t your biggest concern with Stellar Bancorp, you should know about the other risks facing this business. We’ve identified 2 warning signs with Stellar Bancorp (at least 1 which is a bit concerning), and understanding these should be part of your investment process.
If you’re in the market for strong dividend payers, we recommend checking our selection of top 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.
Source: finance.yahoo.com
