The board of Lakeland Financial Corporation (NASDAQ:LKFN) has announced that the dividend on 5th of February will be increased to $0.50, which will be 4.2% higher than last year's payment of $0.48 which covered the same period. Based on this payment, the dividend yield for the company will be 2.8%, which is fairly typical for the industry.

See our latest analysis for Lakeland Financial

Lakeland Financial's Earnings Will Easily Cover The Distributions

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

Lakeland Financial 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 Lakeland Financial would be able to pay its last dividend without pressure on the balance sheet.

EPS is set to fall by 1.0% over the next 3 years. However, as estimated by analysts, the future payout ratio could be 52% over the same time period, which we think the company can easily maintain.

Lakeland Financial Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $0.507 in 2015 to the most recent total annual payment of $1.92. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

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, Lakeland Financial has only grown its earnings per share at 2.8% per annum over the past five years. The company has been growing at a pretty soft 2.8% per annum, and is paying out quite a lot of its earnings to shareholders. While this isn't necessarily a negative, it definitely signals that dividend growth could be constrained in the future unless earnings start to pick up again.

Lakeland Financial Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Lakeland Financial is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Lakeland Financial that investors need to be conscious of moving forward. Is Lakeland Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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