The board of First United Corporation (NASDAQ:FUNC) has announced that it will be paying its dividend of $0.18 on the 1st of February, an increased payment from last year's comparable dividend. This takes the annual payment to 3.7% of the current stock price, which is about average for the industry.

Check out our latest analysis for First United

First United's Earnings Will Easily Cover The Distributions

Solid dividend yields are great, but they only really help us if the payment is sustainable.

First United has a good history of paying out dividends, with its current track record at 5 years. 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.

Over the next year, EPS could expand by 32.8% if recent trends continue. 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 Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 5 years of history we want to see a few more years of history before making any solid conclusions. Since 2018, the dividend has gone from $0.36 total annually to $0.72. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

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. It's encouraging to see that First United has been growing its earnings per share at 33% a 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, a dividend increase is always good, and we think that First United is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for First United that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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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