Cambridge Bancorp's (NASDAQ:CATC) Upcoming Dividend Will Be Larger Than Last Year's

Cambridge Bancorp (NASDAQ:CATC) has announced that it will be increasing its dividend from last year's comparable payment on the 25th of May to $0.67. This makes the dividend yield 5.1%, which is above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Cambridge Bancorp's stock price has reduced by 34% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

See our latest analysis for Cambridge Bancorp

Cambridge Bancorp's Payment Expected To Have Solid Earnings Coverage

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

Having distributed dividends for at least 10 years, Cambridge Bancorp has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 37%, which means that Cambridge Bancorp would be able to pay its last dividend without pressure on the balance sheet.

Looking forward, earnings per share is forecast to rise by 7.1% over the next year. Assuming the dividend continues along recent trends, we think the future payout ratio could be 39% by next year, which is in a pretty sustainable range.

Cambridge Bancorp Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was $1.48, compared to the most recent full-year payment of $2.68. This works out to be a compound annual growth rate (CAGR) of approximately 6.1% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Cambridge Bancorp has impressed us by growing EPS at 11% per year over the past five years. Cambridge Bancorp definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

An additional note is that the company has been raising capital by issuing stock equal to 12% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

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 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.

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. For example, we've picked out 2 warning signs for Cambridge Bancorp that investors should know about before committing capital to this stock. 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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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.