The board of TowneBank (NASDAQ:TOWN) has announced that it will pay a dividend of $0.25 per share on the 12th of July. This means the dividend yield will be fairly typical at 3.7%.

View our latest analysis for TowneBank

TowneBank's Payment Expected To Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable.

TowneBank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 50%, which means that TowneBank would be able to pay its last dividend without pressure on the balance sheet.

Over the next year, EPS is forecast to expand by 12.7%. Assuming the dividend continues along recent trends, we think the future payout ratio could be 48% by next year, which is in a pretty sustainable range.

TowneBank Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.40 in 2014 to the most recent total annual payment of $1.00. This means that it has been growing its distributions at 9.6% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, TowneBank's EPS was effectively flat over the past five years, which could stop the company from paying more every year. The company has been growing at a pretty soft 0.7% per annum, and is paying out quite a lot of its earnings to shareholders. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.

TowneBank Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think TowneBank might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 5 analysts we track are forecasting for TowneBank for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.