Orrstown Financial Services (NASDAQ:ORRF) Will Pay A Larger Dividend Than Last Year At $0.26

The board of Orrstown Financial Services, Inc. (NASDAQ:ORRF) has announced that it will be paying its dividend of $0.26 on the 21st of February, an increased payment from last year's comparable dividend. This makes the dividend yield about the same as the industry average at 2.7%.

See our latest analysis for Orrstown Financial Services

Orrstown Financial Services' Dividend Forecasted To Be Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time.

Orrstown Financial Services has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on Orrstown Financial Services' last earnings report, the payout ratio is at a decent 58%, meaning that the company is able to pay out its dividend with a bit of room to spare.

According to analysts, EPS should be several times higher in the next 3 years. Additionally, they estimate future payout ratio will be 22% over the same time horizon, which makes us pretty comfortable with the sustainability of the dividend.

Orrstown Financial Services 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 2015, the dividend has gone from $0.28 total annually to $0.92. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

Dividend Growth Is Doubtful

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Orrstown Financial Services has seen earnings per share falling at 7.0% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

We should note that Orrstown Financial Services has issued stock equal to 83% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 3 warning signs for Orrstown Financial Services you should be aware of, and 1 of them is a bit unpleasant. 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.