Readers hoping to buy S&T Bancorp, Inc. (NASDAQ:STBA) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. This means that investors who purchase S&T Bancorp's shares on or after the 12th of November will not receive the dividend, which will be paid on the 27th of November.
The company's upcoming dividend is US$0.38 a share, following on from the last 12 months, when the company distributed a total of US$1.48 per share to shareholders. Based on the last year's worth of payments, S&T Bancorp has a trailing yield of 2.9% on the current stock price of US$50.78. 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 check whether the dividend payments are covered, and if earnings are growing.
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. That's why it's good to see S&T Bancorp paying out a modest 37% of its earnings.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
See our latest analysis for S&T Bancorp
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. That's why it's comforting to see S&T Bancorp's earnings have been skyrocketing, up 50% per annum for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. S&T Bancorp has delivered an average of 6.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Final Takeaway
Should investors buy S&T Bancorp for the upcoming dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating S&T Bancorp more closely.
On that note, you'll want to research what risks S&T Bancorp is facing. Case in point: We've spotted 1 warning sign for S&T Bancorp you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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