Eagle Bancorp (NASDAQ:EGBN) Will Pay A Smaller Dividend Than Last Year

Eagle Bancorp, Inc. (NASDAQ:EGBN) is reducing its dividend from last year's comparable payment to $0.165 on the 31st of October. Despite the cut, the dividend yield of 2.9% will still be comparable to other companies in the industry.

See our latest analysis for Eagle Bancorp

Eagle Bancorp's Dividend Forecasted To Be Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable.

Eagle Bancorp has established itself as a dividend paying company, given its 5-year history of distributing earnings to shareholders. But while this history shows that Eagle Bancorp was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company's net income wasn't enough to cover dividends. This is an alarming sign for the sustainability of its dividends, as it may mean that Eagle Bancorpis pulling cash from elsewhere to keep its shareholders happy.

Analysts expect a massive rise in earnings per share in the next 3 years. Additionally, they estimate future payout ratio will be 41% over the same time horizon, which makes us pretty comfortable with the sustainability of the dividend.

Eagle Bancorp's Dividend Has Lacked Consistency

Eagle Bancorp has been paying dividends for a while, but the track record isn't stellar. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. Since 2019, the dividend has gone from $0.88 total annually to $0.66. This works out to be a decline of approximately 5.6% per year over that time. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Come By

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Eagle Bancorp's EPS has declined at around 9.7% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Eagle Bancorp that investors should know about before committing capital to this stock. Is Eagle Bancorp not quite the opportunity you were looking for? Why not check out our selection of top 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.