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Fidelity D & D Bancorp, Inc. (NASDAQ:FDBC) has announced that it will be increasing its periodic dividend on the 10th of December to $0.40, which will be 5.3% higher than last year's comparable payment amount of $0.38. The payment will take the dividend yield to 2.9%, which is in line with the average for the industry.
See our latest analysis for Fidelity D & D Bancorp
Fidelity D & D Bancorp's Dividend Forecasted To Be Well Covered By Earnings
Unless the payments are sustainable, the dividend yield doesn't mean too much.
Having distributed dividends for at least 10 years, Fidelity D & D Bancorp has a long history of paying out a part of its earnings to shareholders. Based on Fidelity D & D Bancorp's last earnings report, the payout ratio is at a decent 56%, meaning that the company is able to pay out its dividend with a bit of room to spare.
EPS is set to fall by 2.8% over the next 12 months if recent trends continue. If the dividend continues along recent trends, we estimate the future payout ratio could be 64%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Fidelity D & D Bancorp Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.667 in 2014, and the most recent fiscal year payment was $1.52. This works out to be a compound annual growth rate (CAGR) of approximately 8.6% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Fidelity D & D Bancorp May Find It Hard To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Fidelity D & D Bancorp has seen earnings per share falling at 2.8% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.
Our Thoughts On Fidelity D & D Bancorp's Dividend
In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.