Auburn National Bancorporation (NASDAQ:AUBN) Has Affirmed Its Dividend Of US$0.26

The board of Auburn National Bancorporation, Inc. (NASDAQ:AUBN) has announced that it will pay a dividend of US$0.26 per share on the 27th of December. This makes the dividend yield 3.1%, which will augment investor returns quite nicely.

Check out our latest analysis for Auburn National Bancorporation

Auburn National Bancorporation's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, Auburn National Bancorporation was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

If the trend of the last few years continues, EPS will grow by 1.2% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend.

Auburn National Bancorporation Has A Solid Track Record

The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was US$0.80 in 2011, and the most recent fiscal year payment was US$1.04. This works out to be a compound annual growth rate (CAGR) of approximately 2.7% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Auburn National Bancorporation's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 1.2% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This could mean the dividend doesn't have the growth potential we look for going into the future.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Auburn National Bancorporation's payments, as there could be some issues with sustaining them into the future. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. See if management have their own wealth at stake, by checking insider shareholdings in Auburn National Bancorporation stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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.

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