VersaBank (TSE:VBNK) Has Announced A Dividend Of CA$0.025

The board of VersaBank (TSE:VBNK) has announced that it will pay a dividend of CA$0.025 per share on the 31st of July. Including this payment, the dividend yield on the stock will be 1.0%, which is a modest boost for shareholders' returns.

Check out our latest analysis for VersaBank

VersaBank's Dividend Forecasted To Be Well Covered By Earnings

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible.

VersaBank has established itself as a dividend paying company, given its 5-year history of distributing earnings to shareholders. Using data from its latest earnings report, VersaBank's payout ratio sits at 8.8%, an extremely comfortable number that shows that it can pay its dividend.

Over the next year, EPS is forecast to expand by 32.8%. If the dividend continues on this path, the future payout ratio could be 7.7% by next year, which we think can be pretty sustainable going forward.

VersaBank Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 5 years of history we want to see a few more years of history before making any solid conclusions. The annual payment during the last 5 years was CA$0.04 in 2018, and the most recent fiscal year payment was CA$0.10. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. VersaBank has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. VersaBank has impressed us by growing EPS at 17% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

VersaBank Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think VersaBank might even raise payments in the future. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for VersaBank that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.