Magyar Bancorp, Inc. (NASDAQ:MGYR) will increase its dividend on the 24th of November to $0.04, which is 33% higher than last year's payment from the same period of $0.03. This takes the annual payment to 2.2% of the current stock price, which unfortunately is below what the industry is paying.

See our latest analysis for Magyar Bancorp

Magyar Bancorp's Earnings Will Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end.

Given that this is the first year that Magyar Bancorp is paying out a dividend, we are not yet able to make an analysis based on the company's dividend paying history. While this gives us less confidence in Magyar Bancorp's long-term dividend potential, the company's payout ratio of 9.8%is a great sign for current shareholders, as this means that earnings greatly cover dividends.

Over the next year, EPS could expand by 32.3% if recent trends continue. If the dividend continues along recent trends, we estimate the future payout ratio will be 18%, which is in the range that makes us comfortable with the sustainability of the dividend.

Magyar Bancorp Is Still Building Its Track Record

Without a track record of dividend payments, we can't make a judgement on how stable it has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Magyar Bancorp has impressed us by growing EPS at 32% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

We Really Like Magyar Bancorp's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Magyar Bancorp that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.