1st Source's (NASDAQ:SRCE) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of 1st Source Corporation (NASDAQ:SRCE) has announced that it will be increasing its dividend by 3.2% on the 12th of August to $0.32, up from last year's comparable payment of $0.31. This takes the annual payment to 2.6% of the current stock price, which is about average for the industry.

View our latest analysis for 1st Source

1st Source's Payment Expected To Have Solid Earnings Coverage

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.

1st Source has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Using data from its latest earnings report, 1st Source's payout ratio sits at 13%, an extremely comfortable number that shows that it can pay its dividend.

Looking forward, earnings per share is forecast to fall by 9.2% over the next 3 years. Fortunately, analysts forecast the future payout ratio to be 30% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

1st Source Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from $0.582 total annually to $1.24. This works out to be a compound annual growth rate (CAGR) of approximately 7.9% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that 1st Source has been growing its earnings per share at 14% a year over the past five years. 1st Source definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

1st Source Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. Taking this all into consideration, this looks like it could be a good dividend opportunity.

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. For example, we've picked out 1 warning sign for 1st Source that investors should know about before committing capital to this stock. Is 1st Source 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.