Hawthorn Bancshares, Inc. (NASDAQ:HWBK) will pay a dividend of $0.17 on the 1st of April. This payment means that the dividend yield will be 2.7%, which is around the industry average.

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 Hawthorn Bancshares' stock price has increased by 33% 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 Hawthorn Bancshares

Hawthorn Bancshares Will Pay Out More Than It Is Earning

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

Having distributed dividends for at least 10 years, Hawthorn Bancshares has a long history of paying out a part of its earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Hawthorn Bancshares' last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign for the sustainability of its dividends, as it may mean that Hawthorn Bancsharesis pulling cash from elsewhere to keep its shareholders happy.

Looking forward, EPS could fall by 37.8% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 945%, which is definitely a bit high to be sustainable going forward.

Hawthorn Bancshares Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.13 in 2014, and the most recent fiscal year payment was $0.68. This works out to be a compound annual growth rate (CAGR) of approximately 18% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Hawthorn Bancshares' EPS has fallen by approximately 38% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Hawthorn Bancshares' Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.