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The board of Auburn National Bancorporation, Inc. (NASDAQ:AUBN) has announced that it will pay a dividend of US$0.26 per share on the 27th of December. Based on this payment, the dividend yield on the company's stock will be 3.1%, which is an attractive boost to shareholder returns.
Auburn National Bancorporation's Earnings Easily Cover the Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Auburn National Bancorporation's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
If the trend of the last few years continues, EPS will grow by 1.2% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 45%, which is in the range that makes us comfortable with the sustainability of the dividend.
Auburn National Bancorporation Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the dividend has gone from US$0.80 to US$1.04. This implies that the company grew its distributions at a yearly rate of about 2.7% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
Dividend Growth May Be Hard To Achieve
The company's investors will be pleased to have been receiving dividend income for some time. However, Auburn National Bancorporation's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 1.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This could mean the dividend doesn't have the growth potential we look for going into the future.
Our Thoughts On Auburn National Bancorporation's Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Auburn National Bancorporation's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We don't think Auburn National Bancorporation is a great stock to add to your portfolio if income is your focus.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Auburn National Bancorporation stock. We have also put together a list of global stocks with a solid dividend.
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.
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