Yahoo Finance Shore Bancshares (NASDAQ:SHBI) Has Announced A Dividend Of US$0.12
Shore Bancshares, Inc. (NASDAQ:SHBI) has announced that it will pay a dividend of US$0.12 per share on the 31st of May. This payment means that the dividend yield will be 2.4%, which is around the industry average.
View our latest analysis for Shore Bancshares
Shore Bancshares' Earnings Easily Cover the Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, Shore Bancshares' earnings easily covered the dividend, but free cash flows were negative. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.
Over the next year, EPS is forecast to expand by 45.0%. If the dividend continues on this path, the payout ratio could be 49% by next year, which we think can be pretty sustainable going forward.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2012, the first annual payment was US$0.04, compared to the most recent full-year payment of US$0.48. This implies that the company grew its distributions at a yearly rate of about 28% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Although it's important to note that Shore Bancshares' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Growth of 1.7% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
We'd also point out that Shore Bancshares has issued stock equal to 69% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Shore Bancshares has 4 warning signs (and 1 which is potentially serious) we think you should know about. Is Shore Bancshares not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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