Hawthorn Bancshares' (NASDAQ:HWBK) Dividend Will Be Increased To $0.19

The board of Hawthorn Bancshares, Inc. (NASDAQ:HWBK) has announced that the dividend on 1st of July will be increased to $0.19, which will be 12% higher than last year's payment of $0.17 which covered the same period. This takes the annual payment to 3.6% of the current stock price, which is about average for the industry.

See our latest analysis for Hawthorn Bancshares

Hawthorn Bancshares Will Pay Out More Than It Is Earning

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important.

Hawthorn Bancshares has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions unfortunately do not guarantee future ones, and Hawthorn Bancshares' last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is very worrying for shareholders, as this shows that Hawthorn Bancshares will not be able to sustain its dividend at its current rate.

If the company can't turn things around, EPS could fall by 30.0% over the next year. Assuming the dividend continues along recent trends, we believe the future payout ratio could reach 383%, which could put the dividend under pressure if earnings don't start to improve.

Hawthorn Bancshares 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. Since 2014, the annual payment back then was $0.13, compared to the most recent full-year payment of $0.68. This means that it has been growing its distributions at 18% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Has Limited 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. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 30% over the last five years. 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.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Hawthorn Bancshares' payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

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. Case in point: We've spotted 3 warning signs for Hawthorn Bancshares (of which 1 shouldn't be ignored!) you should know about. Is Hawthorn Bancshares 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.