Unity Bancorp (NASDAQ:UNTY) Is Increasing Its Dividend To US$0.11

Unity Bancorp, Inc.'s (NASDAQ:UNTY) dividend will be increasing to US$0.11 on 24th of June. Even though the dividend went up, the yield is still quite low at only 1.4%.

See our latest analysis for Unity Bancorp

Unity Bancorp's Dividend Is Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, Unity Bancorp's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 0.9%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 13%, which is comfortable for the company to continue in the future.

historic-dividend

Unity Bancorp Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from US$0.036 in 2013 to the most recent annual payment of US$0.40. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Unity Bancorp has seen EPS rising for the last five years, at 23% per annum. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.

Unity Bancorp Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Unity Bancorp is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.

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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 3 analysts we track are forecasting for Unity Bancorp for free with public analyst estimates for the company. Is Unity Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.