The advice of Lake Shore Bancorp, Inc. (NASDAQ:LSBK) announced that it will increase its dividend on March 17 to $0.16. The announced payout will bring the dividend yield to 3.8%, which is in line with the industry average.
Check out our latest analysis for Lake Shore Bancorp
Lake Shore Bancorp’s dividend is well covered by earnings
We like a dividend to be consistent over the long term, so it’s important to check if it’s sustainable. Prior to this announcement, Lake Shore Bancorp’s dividend was comfortably covered by both cash flow and earnings. This indicates that a large part of the profits are reinvested in the company, with the aim of fueling growth.
Over the next year, EPS could rise 13.7% if recent trends continue. If the dividend continues to follow recent trends, we estimate the payout ratio to be 51%, which is within the range that allows us to be comfortable with the sustainability of the dividend.
The company has a long history of dividends, but it doesn’t look good with the cuts of the past. The dividend increased from US$0.28 in 2012 to the last annual payment of US$0.56. This implies that the company has increased its distributions at an annual rate of approximately 7.2% over this period. We like to see dividends growing at a reasonable pace, but with at least a substantial reduction in payouts, we’re not sure this dividend stock would be ideal for someone who intends to live on income.
The dividend should increase
With a relatively unstable dividend, it is even more important to see if earnings per share increase. It is encouraging to see that Lake Shore Bancorp has increased its earnings per share by 14% per year over the past five years. With earnings per share growing at an acceptable pace and a balanced payout policy, we believe the company is well positioned to grow earnings and dividends going forward.
We really like the Lake Shore Bancorp dividend
Overall, a dividend increase is always good, and we think Lake Shore Bancorp is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also converted into cash flow. Considering all of this, it looks like a good dividend opportunity.
It is important to note that companies with a consistent dividend policy will generate greater investor confidence than those with an erratic policy. However, there are other things for investors to consider when analyzing stock performance. For example, we chose 2 warning signs for Lake Shore Bancorp that investors should be aware of before committing capital to this security. Looking for more high yield dividend ideas? Try our collection of strong dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.