FS Bancorp (NASDAQ:FSBW) Has Announced That It Will Be Increasing Its Dividend To $0.27

FS Bancorp, Inc. (NASDAQ:FSBW) has announced that it will be increasing its dividend from last year's comparable payment on the 21st of August to $0.27. Even though the dividend went up, the yield is still quite low at only 2.5%.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that FS Bancorp's stock price has increased by 36% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

View our latest analysis for FS Bancorp

FS Bancorp's Earnings Will Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible.

Having distributed dividends for at least 10 years, FS Bancorp has a long history of paying out a part of its earnings to shareholders. Using data from its latest earnings report, FS Bancorp's payout ratio sits at 22%, an extremely comfortable number that shows that it can pay its dividend.

Over the next year, EPS is forecast to fall by 2.5%. But assuming the dividend continues along recent trends, we believe the future payout ratio could be 28%, which we are pretty comfortable with and we think would be feasible on an earnings basis.

FS Bancorp Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.10 in 2014, and the most recent fiscal year payment was $1.04. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that FS Bancorp has been growing its earnings per share at 7.5% a year over the past five years. FS Bancorp definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

FS Bancorp Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that FS Bancorp is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. 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. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for FS Bancorp that investors should take into consideration. 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.

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