Auburn National Bancorporation, Inc. (NASDAQ:AUBN) has announced that it will pay a dividend of $0.27 per share on the 26th of December. This means the annual payment is 4.8% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Auburn National Bancorporation

Auburn National Bancorporation Not Expected To Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Auburn National Bancorporation has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Auburn National Bancorporation's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is very worrying for shareholders, as this shows that Auburn National Bancorporation will not be able to sustain its dividend at its current rate.

If the company can't turn things around, EPS could fall by 37.8% over the next year. Assuming the dividend continues along recent trends, we believe the future payout ratio could reach 731%, which could put the dividend under pressure if earnings don't start to improve.

Auburn National Bancorporation Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.86 in 2014 to the most recent total annual payment of $1.08. This implies that the company grew its distributions at a yearly rate of about 2.3% over that duration. 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.

Dividend Growth Potential Is Shaky

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Auburn National Bancorporation's EPS has fallen by approximately 38% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

Auburn National Bancorporation's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Auburn National Bancorporation's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For example, we've identified 4 warning signs for Auburn National Bancorporation (1 makes us a bit uncomfortable!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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