FNCB Bancorp (NASDAQ:FNCB) Is Increasing Its Dividend To US$0.075

The board of FNCB Bancorp, Inc. (NASDAQ:FNCB) has announced that it will be increasing its dividend on the 15th of September to US$0.075. This will take the dividend yield to an attractive 3.3%, providing a nice boost to shareholder returns.

View our latest analysis for FNCB Bancorp

FNCB Bancorp's Payment Has Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, FNCB Bancorp was easily earning enough to cover the dividend. This means that most of its earnings are being retained to grow the business.

EPS is set to fall by 14.2% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we believe the payout ratio could be 39%, which we are pretty comfortable with and we think is feasible on an earnings basis.

FNCB Bancorp Doesn't Have A Long Payment History

FNCB Bancorp's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The dividend has gone from US$0.08 in 2015 to the most recent annual payment of US$0.30. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though FNCB Bancorp's EPS has declined at around 14% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

Our Thoughts On FNCB Bancorp's Dividend

In summary, while it's always good to see the dividend being raised, we don't think FNCB Bancorp's payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for FNCB Bancorp (1 doesn't sit too well with us!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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