TowneBank's (NASDAQ:TOWN) Shareholders Will Receive A Bigger Dividend Than Last Year

The board of TowneBank (NASDAQ:TOWN) has announced that the dividend on 14th of July will be increased to $0.25, which will be 8.7% higher than last year's payment of $0.23 which covered the same period. This makes the dividend yield about the same as the industry average at 3.8%.

See our latest analysis for TowneBank

TowneBank's Payment Expected To Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable.

TowneBank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on TowneBank's last earnings report, the payout ratio is at a decent 37%, meaning that the company is able to pay out its dividend with a bit of room to spare.

EPS is set to fall by 1.4% over the next 12 months. But assuming the dividend continues along recent trends, we believe the future payout ratio could be 42%, which we are pretty comfortable with and we think would be feasible on an earnings basis.

TowneBank 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 2013, the annual payment back then was $0.32, compared to the most recent full-year payment of $0.92. This implies that the company grew its distributions at a yearly rate of about 11% 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.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that TowneBank has grown earnings per share at 12% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for TowneBank's prospects of growing its dividend payments in the future.

TowneBank Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. All of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for TowneBank (of which 1 is significant!) you should know about. 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.