Auburn National Bancorporation (NASDAQ:AUBN) Has Announced A Dividend Of $0.27

The board of Auburn National Bancorporation, Inc. (NASDAQ:AUBN) has announced that it will pay a dividend of $0.27 per share on the 25th of June. This makes the dividend yield 5.8%, which will augment investor returns quite nicely.

View our latest analysis for Auburn National Bancorporation

Auburn National Bancorporation Will Pay Out More Than It Is Earning

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

Having distributed dividends for at least 10 years, Auburn National Bancorporation has a long history of paying out a part of its earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Auburn National Bancorporation's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign that could mean that Auburn National Bancorporation's dividend at its current rate may no longer be sustainable for longer.

Looking forward, EPS could fall by 38.1% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the future payout ratio could reach 780%, which could put the dividend in jeopardy if the company's earnings don't improve.

Auburn National Bancorporation Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the dividend has gone from $0.84 total annually to $1.08. This means that it has been growing its distributions at 2.5% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Auburn National Bancorporation's EPS has fallen by approximately 38% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

The Dividend Could Prove To Be Unreliable

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. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 5 warning signs for Auburn National Bancorporation you should be aware of, and 1 of them makes us a bit uncomfortable. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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