The board of United Community Banks, Inc. (NASDAQ:UCBI) has announced that it will pay a dividend on the 5th of April, with investors receiving $0.23 per share. This means that the annual payment will be 3.6% of the current stock price, which is in line with the average for the industry.

See our latest analysis for United Community Banks

United Community Banks' Payment Expected To Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much.

Having distributed dividends for at least 10 years, United Community Banks has a long history of paying out a part of its earnings to shareholders. Based on United Community Banks' last earnings report, the payout ratio is at a decent 60%, meaning that the company is able to pay out its dividend with a bit of room to spare.

The next 3 years are set to see EPS grow by 76.5%. Analysts forecast the future payout ratio could be 41% over the same time horizon, which is a number we think the company can maintain.

United Community Banks Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $0.12 in 2014 to the most recent total annual payment of $0.92. This means that it has been growing its distributions at 23% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth May Be Hard To Come By

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that United Community Banks' earnings per share has fallen at approximately 6.0% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

In Summary

Overall, a consistent dividend is a good thing, and we think that United Community Banks has the ability to continue this into the future. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.