Orrstown Financial Services, Inc. (NASDAQ:ORRF) has announced that it will pay a dividend of $0.19 per share on the 8th of August. This means the dividend yield will be fairly typical at 2.9%.

View our latest analysis for Orrstown Financial Services

Orrstown Financial Services' Earnings Will Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much.

Orrstown Financial Services has established itself as a dividend paying company, given its 7-year history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio of 26%shows that Orrstown Financial Services would be able to pay its last dividend without pressure on the balance sheet.

The next year is set to see EPS grow by 0.6%. If the dividend continues along recent trends, we estimate the future payout ratio will be 30%, which is in the range that makes us comfortable with the sustainability of the dividend.

Orrstown Financial Services Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2015, the dividend has gone from $0.28 total annually to $0.76. This means that it has been growing its distributions at 15% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Orrstown Financial Services has seen EPS rising for the last five years, at 22% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like Orrstown Financial Services' Dividend

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Orrstown Financial Services (of which 1 doesn't sit too well with us!) you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.