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Lake Shore Bancorp, Inc. (NASDAQ:LSBK) has announced that it will be increasing its dividend from last year's comparable payment on the 19th of August to $0.18. Based on this payment, the dividend yield for the company will be 5.2%, which is fairly typical for the industry.
Lake Shore Bancorp's Payment Expected To Have Solid Earnings Coverage
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important.
Lake Shore Bancorp has a long history of paying out dividends, with its current track record at a minimum of 10 years. Based on Lake Shore Bancorp's last earnings report, the payout ratio is at a decent 60%, meaning that the company is able to pay out its dividend with a bit of room to spare.
Looking forward, earnings per share could rise by 19.7% over the next year if the trend from the last few years continues. If the dividend continues along recent trends, we estimate the future payout ratio will be 54%, which is in the range that makes us comfortable with the sustainability of the dividend.
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $0.28 in 2012, and the most recent fiscal year payment was $0.72. This works out to be a compound annual growth rate (CAGR) of approximately 9.9% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.
The Dividend Looks Likely To Grow
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. We are encouraged to see that Lake Shore Bancorp has grown earnings per share at 20% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.
We Really Like Lake Shore Bancorp'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 easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income 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. Taking the debate a bit further, we've identified 2 warning signs for Lake Shore Bancorp that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection 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.
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