Old Second Bancorp's (NASDAQ:OSBC) Dividend Will Be Increased To $0.06

Old Second Bancorp, Inc. (NASDAQ:OSBC) has announced that it will be increasing its dividend from last year's comparable payment on the 4th of November to $0.06. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.

View our latest analysis for Old Second Bancorp

Old Second Bancorp's Dividend Forecasted To Be Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable.

Old Second Bancorp has a good history of paying out dividends, with its current track record at 8 years. While past records don't necessarily translate into future results, the company's payout ratio of 11% also shows that Old Second Bancorp is able to comfortably pay dividends.

Over the next 3 years, EPS is forecast to fall by 3.5%. Fortunately, analysts forecast the future payout ratio to be 14% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

Old Second Bancorp Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2016, the annual payment back then was $0.04, compared to the most recent full-year payment of $0.24. This implies that the company grew its distributions at a yearly rate of about 25% over that duration. Old Second Bancorp has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Has 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. We are encouraged to see that Old Second Bancorp has grown earnings per share at 7.8% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Case in point: We've spotted 2 warning signs for Old Second Bancorp (of which 1 is a bit unpleasant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high yield 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.