Chemung Financial Corporation (NASDAQ:CHMG) will increase its dividend on the 1st of July to US$0.31. Based on the announced payment, the dividend yield for the company will be 2.5%, which is fairly typical for the industry.
Chemung Financial's Dividend Is Well Covered By Earnings
Solid dividend yields are great, but they only really help us if the payment is sustainable. Before making this announcement, Chemung Financial was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Over the next year, EPS is forecast to fall by 3.0%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 23%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Chemung Financial 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 2011, the dividend has gone from US$1.00 to US$1.24. This works out to be a compound annual growth rate (CAGR) of approximately 2.2% 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 Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see Chemung Financial has been growing its earnings per share at 19% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Chemung Financial Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We do should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for Chemung Financial (of which 1 is concerning!) you should know about. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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