Lake Shore Bancorp, Inc. (NASDAQ:LSBK) announced it would increase its dividend from last year’s comparable payout on Aug. 19 to $0.18. Based on this payout, the dividend yield for the company will be 5.2%, which is fairly typical for the industry.
Check out our latest analysis for Lake Shore Bancorp
Lake Shore Bancorp payment expected to have strong revenue coverage
We like a dividend to be consistent over the long term, so it’s important to check if it’s sustainable.
Lake Shore Bancorp has a long history of paying dividends, with its current balance sheet of at least 10 years. According to Lake Shore Bancorp’s latest earnings report, the payout ratio is 60%, meaning the company is able to pay out its dividend with some wiggle room.
Going forward, earnings per share could increase by 19.7% over the next year if the trend of recent years continues. If the dividend continues to follow recent trends, we estimate the future payout ratio to be 54%, which is within the range that allows us to be comfortable with the sustainability of the dividend.
The company’s dividend history has been marked by instability, with at least one decline over the past 10 years. The annual payment over the past 10 years was $0.28 in 2012, and the most recent year’s payment was $0.72. This equates to a compound annual growth rate (CAGR) of approximately 9.9% per year during this period. A reasonable rate of dividend growth is good to see, but we are concerned that the dividend track record is not as strong as we would like, having been cut at least once.
The dividend should increase
Since the dividend has been reduced in the past, we need to check if earnings are increasing and if this could lead to higher dividends in the future. We are encouraged to see that Lake Shore Bancorp has increased its earnings per share by 20% per year over the past five years. Profits are on the rise and pay only a small portion of those profits to shareholders.
We really like the Lake Shore Bancorp dividend
Overall, we think it could be an attractive income stock, and it’s only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it’s good to see that income translate into cash flow. Overall, this checks a lot of the boxes we look for when choosing an income stock.
Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. However, there are other things for investors to consider when analyzing stock performance. Pushing the debate a little further, we have identified 2 warning signs for Lake Shore Bancorp that investors should be aware of going forward. Looking for more high yield dividend ideas? Try our collection of strong dividend payers.
Feedback on this article? Concerned about content? Get in touch with us directly. You can also email the editorial team (at) Simplywallst.com.
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.
Join a Paid User Research Session
You will receive a $30 Amazon Gift Card for 1 hour of your time while helping us create better investment tools for individual investors like you. register here