Alerus Financial (NASDAQ:ALRS) Is Increasing Its Dividend To $0.20

The board of Alerus Financial Corporation (NASDAQ:ALRS) has announced that it will be increasing its dividend by 5.3% on the 15th of July to $0.20, up from last year's comparable payment of $0.19. This takes the dividend yield to 4.0%, which shareholders will be pleased with.

Check out our latest analysis for Alerus Financial

Alerus Financial Will Pay Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Alerus Financial has a long history of paying out dividends, with its current track record at a minimum of 10 years. Despite this history however, the company's latest earnings report actually shows that it didn't have enough earnings to cover its dividends. This is an alarming sign that could mean that Alerus Financial's dividend at its current rate may no longer be sustainable for longer.

The next 12 months is set to see EPS grow by 71.5%. If the dividend continues on its recent course, the future payout ratio in 12 months could be 96%, which is a bit high and could start applying pressure to the balance sheet.

Alerus Financial Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2014, the annual payment back then was $0.347, compared to the most recent full-year payment of $0.76. This means that it has been growing its distributions at 8.2% per annum over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

The Dividend Has Limited 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. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Alerus Financial's EPS has declined at around 23% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Alerus Financial's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Alerus Financial will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Alerus Financial is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Alerus Financial that investors should take into consideration. 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.