Old Second Bancorp (NASDAQ:OSBC) Is Paying Out A Dividend Of $0.05
The board of Old Second Bancorp, Inc. (NASDAQ:OSBC) has announced that it will pay a dividend on the 7th of November, with investors receiving $0.05 per share. The dividend yield is 1.4% based on this payment, which is a little bit low compared to the other companies in the industry.
See our latest analysis for Old Second Bancorp
Old Second Bancorp's Earnings Will Easily Cover The Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.
Old Second Bancorp has a good history of paying out dividends, with its current track record at 7 years. Taking data from its last earnings report, calculating for the company's payout ratio of 32%shows that Old Second Bancorp would be able to pay its last dividend without pressure on the balance sheet.
Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. Additionally, they estimate future payout ratio will be 12% over the same time horizon, which makes us pretty comfortable with the sustainability of the dividend.
Old Second Bancorp Is Still Building Its Track Record
It is great to see that Old Second Bancorp has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The annual payment during the last 7 years was $0.04 in 2015, and the most recent fiscal year payment was $0.20. This implies that the company grew its distributions at a yearly rate of about 26% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
Dividend Growth May Be Hard To Achieve
Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. In the last five years, Old Second Bancorp's earnings per share has shrunk at approximately 2.8% per annum. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
An additional note is that the company has been raising capital by issuing stock equal to 55% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
In Summary
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Old Second Bancorp's payments, as there could be some issues with sustaining them into the future. While Old Second Bancorp is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Old Second Bancorp (of which 1 is a bit concerning!) you should know about. 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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