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Commerce Bancshares, Inc. (NASDAQ:CBSH) has announced that it will be increasing its dividend on the 23rd of March to US$0.27. Even though the dividend went up, the yield is still quite low at only 1.5%.
Commerce Bancshares' Dividend Is Well Covered By Earnings
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. However, Commerce Bancshares' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to fall by 17.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 32%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Commerce Bancshares Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from US$0.54 to US$1.06. This means that it has been growing its distributions at 7.0% 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 Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. Commerce Bancshares has impressed us by growing EPS at 16% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Commerce Bancshares 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 distributions are easily covered by earnings, and there is plenty of cash being generated as well. 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 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. To that end, Commerce Bancshares has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. Looking for more high-yielding dividend ideas? Try our curated list 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.