The board of Community Financial System, Inc. (NYSE:CBU) has announced that it will be increasing its dividend by 2.2% on the 10th of October to $0.46, up from last year’s comparable payment of $0.45. Based on this payment, the dividend yield for the company will be 3.1%, which is fairly typical for the industry.

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 Community Financial System’s stock price has increased by 32% 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 Community Financial System

Community Financial System’s Dividend Forecasted To Be Well Covered By Earnings

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.

Community Financial System has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company’s payout ratio shows 57%, which means that Community Financial System would be able to pay its last dividend without pressure on the balance sheet.

Looking forward, earnings per share is forecast to rise by 6.5% over the next year. If the dividend continues on this path, the future payout ratio could be 57% by next year, which we think can be pretty sustainable going forward.

Community Financial System Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $1.12 in 2014 to the most recent total annual payment of $1.80. This means that it has been growing its distributions at 4.9% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Community Financial System hasn’t seen much change in its earnings per share over the last five years.

Our Thoughts On Community Financial System’s Dividend

Overall, it’s great to see the dividend being raised and that it is still in a sustainable range. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Story continues

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Given that earnings are not growing, the dividend does not look nearly so attractive. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. Is Community Financial System not quite the opportunity you were looking for? Why not check out our selection of top 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com