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Financial Institutions, Inc. (NASDAQ:FISI) will increase its dividend on the 2nd of April to $0.31, which is 3.3% higher than last year's payment from the same period of $0.30. This makes the dividend yield 4.2%, which is above the industry average.
View our latest analysis for Financial Institutions
Financial Institutions' Dividend Forecasted To Be Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much.
Having distributed dividends for at least 10 years, Financial Institutions has a long history of paying out a part of its earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Financial Institutions' last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is very worrying for shareholders, as this shows that Financial Institutions will not be able to sustain its dividend at its current rate.
Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. In addtion, they also estimate the future payout ratio could reach 33% in the same time period, which we would be comfortable to see continuing.
Financial Institutions Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.76 in 2015 to the most recent total annual payment of $1.20. This means that it has been growing its distributions at 4.7% per annum 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.
Dividend Growth May Be Hard To Come By
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Financial Institutions' EPS has declined at around 5.3% a year. 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. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.
We should note that Financial Institutions has issued stock equal to 30% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.