Financial Institutions (NASDAQ:FISI) Has Announced That It Will Be Increasing Its Dividend To $0.31

Financial Institutions, Inc. (NASDAQ:FISI) will increase its dividend from last year's comparable payment on the 2nd of April to $0.31. This makes the dividend yield 4.8%, which is above the industry average.

Check out our latest analysis for Financial Institutions

Financial Institutions' Earnings Will Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Financial Institutions has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Despite this history however, the company's latest earnings report actually shows that it didn't have enough earnings to cover its dividends. This is very worrying for shareholders, as this shows that Financial Institutions will not be able to sustain its dividend at its current rate.

Analysts expect a massive rise in earnings per share in the next 3 years. They also estimate that the future payout ratio will be 33% in the same time horizon, so there isn't too much pressure on the dividend.

Financial Institutions Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $0.76 in 2015 to the most recent total annual payment of $1.24. This works out to be a compound annual growth rate (CAGR) of approximately 5.0% 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.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Financial Institutions has seen earnings per share falling at 5.3% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

An additional note is that the company has been raising capital by issuing stock equal to 30% 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.

Our Thoughts On Financial Institutions' Dividend

Overall, we always like to see the dividend being raised, but we don't think Financial Institutions will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Financial Institutions is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Financial Institutions (1 doesn't sit too well with us!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.