The board of Elmira Savings Bank (NASDAQ:ESBK) has announced that it will pay a dividend of US$0.15 per share on the 11th of June. This means the annual payment is 4.4% of the current stock price, which is above the average for the industry.
Elmira Savings Bank's Dividend Is Well Covered By Earnings
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last dividend was quite easily covered by Elmira Savings Bank's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
If the trend of the last few years continues, EPS will grow by 1.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 47%, which is in the range that makes us comfortable with the sustainability of the dividend.
Elmira Savings Bank Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2011, the first annual payment was US$0.60, compared to the most recent full-year payment of US$0.60. Its dividends have grown at less than 1% per annum over this time frame. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately, Elmira Savings Bank's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Growth of 1.6% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
Elmira Savings Bank Looks Like A Great Dividend Stock
Overall, we like to see the dividend staying consistent, and we think Elmira Savings Bank might even raise payments in the future. 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 in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Elmira Savings Bank that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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