South State Corporation (NASDAQ:SSB) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 13th of August to receive the dividend, which will be paid on the 21st of August.
South State’s next dividend payment will be US$0.47 per share, on the back of last year when the company paid a total of US$1.88 to shareholders. Calculating the last year’s worth of payments shows that South State has a trailing yield of 3.4% on the current share price of $55.34. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether South State can afford its dividend, and if the dividend could grow.
See our latest analysis for South State
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. South State distributed an unsustainably high 166% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we’re discomforted by South State’s 19% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. South State has delivered an average of 11% per year annual increase in its dividend, based on the past 10 years of dividend payments. That’s intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. South State is already paying out 166% of its profits, and with shrinking earnings we think it’s unlikely that this dividend will grow quickly in the future.
The Bottom Line
Should investors buy South State for the upcoming dividend? Not only are earnings per share shrinking, but South State is paying out a disconcertingly high percentage of its profit as dividends. It’s not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. All things considered, we’re not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
So if you’re still interested in South State despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. To that end, you should learn about the 4 warning signs we’ve spotted with South State (including 1 which makes us a bit uncomfortable).
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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