Income investors seek a steady stream of dividends. UMB Financial’s dividend history is long and it might make a great addition to an income portfolio. Let’s take a look at the business, dividend history, and payout safety going forward.
Business Overview and Highlights
UMB Financial is a $3.3 billion business. The company is based out of Kansas City, MO and it employs 3,600 people. Last year UMB Financial pulled in $1.1 billion in sales and that works out to $317,000 per employee.
The company operates within the financial sector and maintains a solid credit rating (A-) from the S&P. This allows UMB Financial to issue cheap debt to expand operations and pay dividends.
In January UMB Financial’s board of directors declared a $0.30 dividend per share. The dividend is made payable April 1 to shareholders of record on March 11.
10-Year Dividend History
The company paid investors $0.71 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.17. That’s a 65% increase and you can see the annual changes below…
The compound annual growth is 5.1% over 10 years… but over the last year, the dividend climbed 12.5%. The increase in dividend growth is a good sign. UMB Financial might work out as a great income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
UMB Financial’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 1.78% and that’s below the 10-year average of 1.9%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.UMB Financial has a very consistent dividend yield.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that for every $1 UMB Financial earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety, but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here’s UMB Financial payout ratio based on free cash flow over the last 10 years…
The ratio is volatile over the last 10 years and the trend is up. The last reported year shows a payout ratio of 24.1%. The dividend is sufficiently covered by UMB Financial’s earnings. This gives the board of directors’ wiggle room to raise the dividend. UMB Financial is consistent with their dividends, which is a great sign for dividend investors.
If you’re interested in seeing more dividend research, please comment below. You can also check out our free DRIP calculator. With it, you can uncover the power of dividend reinvestment growth.
Good investing,
Robert
