TowneBank's (NASDAQ:TOWN) investors are due to receive a payment of $0.25 per share on 11th of October. This means that the annual payment will be 2.9% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for TowneBank

TowneBank's Payment Expected To Have Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time.

Having distributed dividends for at least 10 years, TowneBank has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 49%, which means that TowneBank would be able to pay its last dividend without pressure on the balance sheet.

Over the next year, EPS is forecast to expand by 15.9%. Assuming the dividend continues along recent trends, we think the future payout ratio could be 46% by next year, which is in a pretty sustainable range.

TowneBank Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the annual payment back then was $0.40, compared to the most recent full-year payment of $1.00. This works out to be a compound annual growth rate (CAGR) of approximately 9.6% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately, TowneBank's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Growth of 0.9% per annum is not particularly high, which might explain why the company is paying out a higher proportion of earnings. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

We Really Like TowneBank's Dividend

Overall, we like to see the dividend staying consistent, and we think TowneBank might even raise payments in the future. 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 of these factors considered, we think this has solid potential as a dividend stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for TowneBank that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.