Five Star Bancorp (NASDAQ:FSBC) Is Due To Pay A Dividend Of $0.20

Five Star Bancorp (NASDAQ:FSBC) has announced that it will pay a dividend of $0.20 per share on the 13th of May. This means that the annual payment will be 3.6% of the current stock price, which is in line with the average for the industry.

See our latest analysis for Five Star Bancorp

Five Star Bancorp's Dividend Forecasted To Be Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time.

Five Star Bancorp is just starting to establish itself as being able to pay dividends to shareholders, given its short 3-year history of distributing earnings. Diving into the company's earnings report, the payout ratio is set at 29%, which is a decent ratio of dividend payout to earnings, and may sustain future dividends if the company stays at its current trend.

Over the next 3 years, EPS is forecast to fall by 22.7%. Fortunately, analysts forecast the future payout ratio to be 34% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

Five Star Bancorp Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2021, the dividend has gone from $0.60 total annually to $0.80. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

Dividend Growth May Be Hard To Come By

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Five Star Bancorp has seen earnings per share falling at 8.0% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

An additional note is that the company has been raising capital by issuing stock equal to 24% of shares outstanding in the last 12 months. 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.

Our Thoughts On Five Star Bancorp's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Five Star Bancorp's payments, as there could be some issues with sustaining them into the future. While Five Star Bancorp is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 2 warning signs for Five Star Bancorp that investors need to be conscious of moving forward. Is Five Star 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.