National Bankshares (NASDAQ:NKSH) Has Affirmed Its Dividend Of $0.73

The board of National Bankshares, Inc. (NASDAQ:NKSH) has announced that it will pay a dividend of $0.73 per share on the 2nd of June. Based on this payment, the dividend yield on the company's stock will be 5.7%, which is an attractive boost to shareholder returns.

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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. But while this history shows that the company was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company did not make enough earnings to cover its dividend payout. This is an alarming sign that could mean that National Bankshares' dividend at its current rate may no longer be sustainable for longer.

EPS is set to grow by 34.1% over the next year. If the dividend continues along recent trends, we estimate the future payout ratio could reach 85%, which is on the higher side, but certainly still feasible.

Check out our latest analysis for National Bankshares

National Bankshares Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.13 in 2015 to the most recent total annual payment of $1.51. This implies that the company grew its distributions at a yearly rate of about 2.9% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. National Bankshares' EPS has fallen by approximately 12% per year during the past 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. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for National Bankshares that investors should know about before committing capital to this stock. Is National Bankshares 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.