National Bankshares' (NASDAQ:NKSH) Dividend Will Be $0.78

National Bankshares, Inc. (NASDAQ:NKSH) has announced that it will pay a dividend of $0.78 per share on the 2nd of December. This means the annual payment is 4.9% of the current stock price, which is above the average for the industry.

Check out our latest analysis for National Bankshares

National Bankshares' Earnings Will Easily Cover The Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

National Bankshares has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and National Bankshares' last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign that could mean that National Bankshares' dividend at its current rate may no longer be sustainable for longer.

The next 3 years are set to see EPS grow by 114.7%. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 54% over the same time period, which would make us comfortable with the sustainability of the dividend.

National Bankshares 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. The dividend has gone from an annual total of $1.12 in 2014 to the most recent total annual payment of $1.51. This implies that the company grew its distributions at a yearly rate of about 3.0% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though National Bankshares' EPS has declined at around 12% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 4 warning signs for National Bankshares that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.