The board of First United Corporation (NASDAQ:FUNC) has announced that it will be paying its dividend of $0.20 on the 1st of May, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 3.7%.

View our latest analysis for First United

First United's Dividend Forecasted To Be Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.

First United has established itself as a dividend paying company, given its 5-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 16%, showing that the company can pay out its dividends comfortably.

If the trend of the last few years continues, EPS will grow by 45.1% over the next 12 months. Assuming the dividend continues along recent trends, we think the future payout ratio could be 15% by next year, which is in a pretty sustainable range.

First United Doesn't Have A Long Payment History

It is great to see that First United has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 5 years was $0.36 in 2018, and the most recent fiscal year payment was $0.72. This works out to be a compound annual growth rate (CAGR) of approximately 15% 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.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. First United has impressed us by growing EPS at 45% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

First United Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. 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.

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