Plumas Bancorp (NASDAQ:PLBC) Will Pay A Larger Dividend Than Last Year At US$0.16

The board of Plumas Bancorp (NASDAQ:PLBC) has announced that it will be increasing its dividend on the 15th of February to US$0.16. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.

View our latest analysis for Plumas Bancorp

Plumas Bancorp's Dividend Is 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. Prior to this announcement, Plumas Bancorp's earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

If the trend of the last few years continues, EPS will grow by 18.7% over the next 12 months. If the dividend continues on this path, the payout ratio could be 16% by next year, which we think can be pretty sustainable going forward.

Plumas Bancorp Doesn't Have A Long Payment History

Plumas Bancorp's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2017, the dividend has gone from US$0.20 to US$0.64. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. Plumas 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 Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. Plumas Bancorp has seen EPS rising for the last five years, at 19% per annum. Plumas Bancorp definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

The company has also been raising capital by issuing stock equal to 12% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On Plumas Bancorp's Dividend

In summary, while it's always good to see the dividend being raised, we don't think Plumas Bancorp's payments are rock solid. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Plumas Bancorp is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 3 warning signs for Plumas Bancorp that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.