The board of Central Valley Community Bancorp (NASDAQ:CVCY) has announced that it will pay a dividend on the 20th of May, with investors receiving US$0.12 per share. This means the dividend yield will be fairly typical at 2.3%.

See our latest analysis for Central Valley Community Bancorp

Central Valley Community Bancorp's Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, Central Valley Community Bancorp's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Over the next year, EPS is forecast to fall by 3.8%. If the dividend continues along recent trends, we estimate the payout ratio could be 25%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the first annual payment was US$0.20, compared to the most recent full-year payment of US$0.48. This implies that the company grew its distributions at a yearly rate of about 9.1% over that duration. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Central Valley Community Bancorp might have put its house in order since then, but we remain cautious.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's encouraging to see Central Valley Community Bancorp has been growing its earnings per share at 11% a 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.

Central Valley Community Bancorp 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Central Valley Community Bancorp that investors should know about before committing capital to this stock. Is Central Valley Community Bancorp 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.