Oak Valley Bancorp (NASDAQ:OVLY) Is Increasing Its Dividend To US$0.15

The board of Oak Valley Bancorp (NASDAQ:OVLY) has announced that it will be increasing its dividend on the 11th of February to US$0.15. This takes the annual payment to 1.6% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for Oak Valley Bancorp

Oak Valley Bancorp's Payment Has Solid Earnings Coverage

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, Oak Valley Bancorp's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

If the trend of the last few years continues, EPS will grow by 16.0% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 13%, which is in the range that makes us comfortable with the sustainability of the dividend.

Oak Valley Bancorp Is Still Building Its Track Record

It is great to see that Oak Valley Bancorp 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. Since 2014, the first annual payment was US$0.10, compared to the most recent full-year payment of US$0.30. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. 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

The company's investors will be pleased to have been receiving dividend income for some time. Oak Valley Bancorp has impressed us by growing EPS at 16% 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.

We Really Like Oak Valley Bancorp's Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for Oak Valley Bancorp 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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