Investar Holding Corporation (NASDAQ:ISTR) has announced that it will be increasing its dividend on the 29th of October to US$0.08. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.
Investar Holding's Payment Has Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. However, Investar Holding's earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
The next year is set to see EPS grow by 21.7%. If the dividend continues on this path, the payout ratio could be 17% by next year, which we think can be pretty sustainable going forward.
Investar Holding Is Still Building Its Track Record
It is great to see that Investar Holding has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from US$0.027 in 2014 to the most recent annual payment of US$0.32. This works out to be a compound annual growth rate (CAGR) of approximately 42% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. Investar Holding has seen EPS rising for the last five years, at 13% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for Investar Holding's prospects of growing its dividend payments in the future.
We Really Like Investar Holding's Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Investar Holding 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 performing dividend stock.
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