Cambridge Bancorp's (NASDAQ:CATC) Dividend Will Be Increased To US$0.61

Cambridge Bancorp (NASDAQ:CATC) will increase its dividend on the 19th of August to US$0.61. Based on the announced payment, the dividend yield for the company will be 2.8%, which is fairly typical for the industry.

Check out our latest analysis for Cambridge Bancorp

Cambridge Bancorp's Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, Cambridge Bancorp's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.

Looking forward, earnings per share is forecast to fall by 5.2% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 32%, which we are pretty comfortable with and we think is feasible on an earnings basis.

Cambridge Bancorp 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. The dividend has gone from US$1.40 in 2011 to the most recent annual payment of US$2.44. This means that it has been growing its distributions at 5.7% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Cambridge Bancorp has impressed us by growing EPS at 14% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We'd also point out that Cambridge Bancorp has issued stock equal to 29% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Cambridge Bancorp Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Cambridge Bancorp is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Cambridge Bancorp has 2 warning signs (and 1 which can't be ignored) we think you should know about. We have also put together a list of global stocks with a solid dividend.

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