Alerus Financial Corporation (NASDAQ:ALRS) will increase its dividend on the 8th of July to US$0.18, which is 13% higher than last year. This takes the annual payment to 2.6% of the current stock price, which is about average for the industry.
Alerus Financial's Payment Has Solid Earnings Coverage
Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, Alerus Financial's dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to fall by 11.4%. Assuming the dividend continues along recent trends, we believe the payout ratio could be 29%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Alerus Financial 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 2012, the first annual payment was US$0.30, compared to the most recent full-year payment of US$0.64. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Alerus Financial has seen EPS rising for the last five years, at 18% per annum. Alerus Financial definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.
We Really Like Alerus Financial's Dividend
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. 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. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 3 analysts we track are forecasting for Alerus Financial for free with public analyst estimates for the company. Is Alerus Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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