Financial Institutions' (NASDAQ:FISI) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of Financial Institutions, Inc. (NASDAQ:FISI) has announced that the dividend on 4th of April will be increased to US$0.29, which will be 7.4% higher than last year. This will take the dividend yield from 3.4% to 3.4%, providing a nice boost to shareholder returns.

Check out our latest analysis for Financial Institutions

Financial Institutions' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. However, prior to this announcement, Financial Institutions' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 31.7%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 35%, which is comfortable for the company to continue in the future.

Financial Institutions Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from US$0.40 to US$1.08. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see Financial Institutions has been growing its earnings per share at 18% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Financial Institutions' prospects of growing its dividend payments in the future.

Financial Institutions 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 earnings easily cover the company's distributions, and the company is generating plenty of cash. We 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. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 1 warning sign for Financial Institutions that you should be aware of before investing. Is Financial Institutions 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.