Financial Institutions, Inc. (NASDAQ:FISI) has announced that it will pay a dividend of $0.30 per share on the 2nd of October. Based on this payment, the dividend yield on the company's stock will be 4.9%, which is an attractive boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Financial Institutions' stock price has increased by 37% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Financial Institutions

Financial Institutions' Dividend Forecasted To Be Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Financial Institutions has a long history of paying out dividends, with its current track record at a minimum of 10 years. Based on Financial Institutions' last earnings report, the payout ratio is at a decent 37%, meaning that the company is able to pay out its dividend with a bit of room to spare.

EPS is set to fall by 1.2% over the next 12 months. But assuming the dividend continues along recent trends, we believe the future payout ratio could be 39%, which we are pretty comfortable with and we think would be feasible on an earnings basis.

Financial Institutions Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $0.76 in 2014 to the most recent total annual payment of $1.20. This works out to be a compound annual growth rate (CAGR) of approximately 4.7% a year over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Financial Institutions Could Grow Its Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Financial Institutions has impressed us by growing EPS at 5.5% 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.

Financial Institutions Looks Like A Great Dividend Stock

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The earnings easily cover the company's distributions, and the company is generating plenty of cash. 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 in all, this checks a lot of the boxes we look for when choosing an income stock.