Simmons First National Corporation's (NASDAQ:SFNC) periodic dividend will be increasing on the 1st of April to $0.2125, with investors receiving 1.2% more than last year's $0.21. This makes the dividend yield about the same as the industry average at 3.8%.

Check out our latest analysis for Simmons First National

Simmons First National's Earnings Will Easily Cover The Distributions

We aren't too impressed by dividend yields unless they can be sustained over time.

Simmons First National has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on Simmons First National's last earnings report, the payout ratio is at a decent 81%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Over the next 3 years, EPS is forecast to expand by 100.4%. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 50% over the same time period, which would make us comfortable with the sustainability of the dividend.

Simmons First National 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 $0.44 in 2015 to the most recent total annual payment of $0.84. This implies that the company grew its distributions at a yearly rate of about 6.7% over that duration. 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.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Earnings per share has been sinking by 17% over the last five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Simmons First National will make a great income stock. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Simmons First National that you should be aware of before investing. Is Simmons First National 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.