The board of United Bancorp, Inc. (NASDAQ:UBCP) has announced that it will pay a dividend of $0.185 per share on the 20th of June. This takes the dividend yield to 6.6%, which shareholders will be pleased with.

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United Bancorp's Dividend Forecasted To Be Well Covered By Earnings

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

United Bancorp has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on United Bancorp's last earnings report, the payout ratio is at a decent 55%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Over the next 3 years, EPS is forecast to expand by 42.0%. The future payout ratio could be 43% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

See our latest analysis for United Bancorp

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2015, the annual payment back then was $0.32, compared to the most recent full-year payment of $0.87. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. United Bancorp has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

United Bancorp May Find It Hard To Grow The Dividend

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. However, United Bancorp's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 0.4% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

Our Thoughts On United Bancorp's Dividend

Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 2 warning signs for United Bancorp that investors should know about before committing capital to this stock. Is United Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.