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

Five Star Bancorp's (NASDAQ:FSBC) investors are due to receive a payment of $0.20 per share on 10th of February. This means that the annual payment will be 2.7% 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

Solid dividend yields are great, but they only really help us if the payment is sustainable.

Five Star Bancorp is just starting to establish itself as being able to pay dividends to shareholders, given its short 4-year history of distributing earnings. Diving into the company's earnings report, the payout ratio is set at 36%, 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 expand by 58.5%. Analysts forecast the future payout ratio could be 28% over the same time horizon, which is a number we think the company can maintain.

Five Star Bancorp Doesn't Have A Long Payment History

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 means that it has been growing its distributions at 7.5% per annum over that time. Five Star Bancorp has been growing its dividend at a decent rate, and the payments have been stable. However, the payment history is very short, so there is no evidence yet that the dividend can be sustained over a full economic cycle.

Dividend Growth Is Doubtful

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Over the past five years, it looks as though Five Star Bancorp's EPS has declined at around 9.9% a year. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.

We should note that Five Star Bancorp has issued stock equal to 24% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

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. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments Five Star Bancorp has been making. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Five Star Bancorp that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.