The board of Ames National Corporation (NASDAQ:ATLO) has announced that it will pay a dividend of $0.27 per share on the 15th of November. Based on this payment, the dividend yield on the company's stock will be 5.9%, which is an attractive boost to shareholder returns.
Ames National's Payment Expected To Have Solid Earnings Coverage
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.
Ames National has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 62%, which means that Ames National would be able to pay its last dividend without pressure on the balance sheet.
Looking forward, earnings per share could rise by 1.7% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the future payout ratio could be 64% by next year, which is in a pretty sustainable range.
Ames National Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $0.60 in 2013, and the most recent fiscal year payment was $1.08. This implies that the company grew its distributions at a yearly rate of about 6.1% over that duration. 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.
Dividend Growth May Be Hard To Achieve
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Although it's important to note that Ames National's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. The company has been growing at a pretty soft 1.7% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.
We Really Like Ames National's Dividend
Overall, we like to see the dividend staying consistent, and we think Ames National might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. See if management have their own wealth at stake, by checking insider shareholdings in Ames National stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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