Ames National's (NASDAQ:ATLO) Dividend Will Be $0.20

The board of Ames National Corporation (NASDAQ:ATLO) has announced that it will pay a dividend of $0.20 per share on the 14th of February. However, the dividend yield of 4.5% is still a decent boost to shareholder returns.

View our latest analysis for Ames National

Ames National Not Expected To Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Ames National has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Despite this history however, the company's latest earnings report actually shows that it didn't have enough earnings to cover its dividends. This is an alarming sign for the sustainability of its dividends, as it may mean that Ames Nationalis pulling cash from elsewhere to keep its shareholders happy.

EPS is set to fall by 11.8% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the future payout ratio could reach 113%, which could put the dividend in jeopardy if the company's earnings don't improve.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $0.72 in 2014, and the most recent fiscal year payment was $0.80. This implies that the company grew its distributions at a yearly rate of about 1.1% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Potential Is Shaky

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Ames National's EPS has fallen by approximately 12% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in.

Ames National's Dividend Doesn't Look Great

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, this doesn't get us very excited from an income standpoint.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Ames National has 2 warning signs (and 1 which is potentially serious) we think you should know about. Is Ames National not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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