Eagle Bancorp Montana (NASDAQ:EBMT) Is Paying Out A Larger Dividend Than Last Year

Eagle Bancorp Montana, Inc.'s (NASDAQ:EBMT) dividend will be increasing to US$0.13 on 3rd of September. This takes the annual payment to 1.9% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Eagle Bancorp Montana

Eagle Bancorp Montana's Payment Has Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Based on the last payment, Eagle Bancorp Montana was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS is forecast to fall by 13.0%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 17%, which is comfortable for the company to continue in the future.

Eagle Bancorp Montana 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$0.28 in 2011 to the most recent annual payment of US$0.50. This implies that the company grew its distributions at a yearly rate of about 6.0% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

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. Eagle Bancorp Montana has impressed us by growing EPS at 27% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

In Summary

Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Eagle Bancorp Montana that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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