We Wouldn't Be Too Quick To Buy S&T Bancorp, Inc. (NASDAQ:STBA) Before It Goes Ex-Dividend
S&T Bancorp, Inc. (NASDAQ:STBA) stock is about to trade ex-dividend in four days. You will need to purchase shares before the 4th of November to receive the dividend, which will be paid on the 19th of November.
S&T Bancorp's next dividend payment will be US$0.28 per share. Last year, in total, the company distributed US$1.12 to shareholders. Last year's total dividend payments show that S&T Bancorp has a trailing yield of 5.7% on the current share price of $19.77. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for S&T Bancorp
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. S&T Bancorp paid out a disturbingly high 226% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business.
When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by S&T Bancorp's 24% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, S&T Bancorp has lifted its dividend by approximately 6.4% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. S&T Bancorp is already paying out 226% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
The Bottom Line
Is S&T Bancorp an attractive dividend stock, or better left on the shelf? Earnings per share are in decline and S&T Bancorp is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
So if you're still interested in S&T Bancorp despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. For example, we've found 4 warning signs for S&T Bancorp that we recommend you consider before investing in the business.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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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