Dime Community Bancshares, Inc. $(DCOM)$ has announced that it will pay a dividend of $0.25 per share on the 24th of April. This means that the annual payment will be 3.6% of the current stock price, which is in line with the average for the industry.

Dime Community Bancshares' Payment Expected To Have Solid Earnings Coverage

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

Dime Community Bancshares has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions unfortunately do not guarantee future ones, and Dime Community 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 Dime Community Bancsharesis pulling cash from elsewhere to keep its shareholders happy.

Analysts expect a massive rise in earnings per share in the next 3 years. They also estimate that the future payout ratio could reach 26% in the same time horizon, which is in a comfortable range for us.

See our latest analysis for Dime Community Bancshares

Dime Community Bancshares Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $0.864 in 2015, and the most recent fiscal year payment was $1.00. This means that it has been growing its distributions at 1.5% 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.

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, things aren't all that rosy. Over the past five years, it looks as though Dime Community Bancshares' EPS has declined at around 21% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

An additional note is that the company has been raising capital by issuing stock equal to 12% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Our Thoughts On Dime Community Bancshares' Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for Dime Community Bancshares that you should be aware of before investing. Is Dime Community Bancshares not quite the opportunity you were looking for? Why not check out our selection of top 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.