Finward Bancorp's (NASDAQ:FNWD) Dividend Will Be US$0.31

Finward Bancorp's (NASDAQ:FNWD) investors are due to receive a payment of US$0.31 per share on 7th of July. This means the dividend yield will be fairly typical at 3.2%.

See our latest analysis for Finward Bancorp

Finward Bancorp's Dividend Is Well Covered By Earnings

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Finward Bancorp is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

The next year is set to see EPS grow by 26.4%. Assuming the dividend continues along recent trends, we think the payout ratio could be 35% by next year, which is in a pretty sustainable range.

Finward Bancorp Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The first annual payment during the last 10 years was US$0.60 in 2012, and the most recent fiscal year payment was US$1.24. This works out to be a compound annual growth rate (CAGR) of approximately 7.5% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

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. However, initial appearances might be deceiving. Although it's important to note that Finward Bancorp's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

We'd also point out that Finward Bancorp has issued stock equal to 24% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. This company is not in the top tier of income providing stocks.

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 3 warning signs for Finward Bancorp that you should be aware of before investing. Is Finward 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.