LCNB Corp. (NASDAQ:LCNB) has announced that it will pay a dividend of $0.22 per share on the 16th of December. This makes the dividend yield 5.2%, which will augment investor returns quite nicely.

Check out our latest analysis for LCNB

LCNB's Payment Expected To Have Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.

LCNB 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 LCNB's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is an alarming sign that could mean that LCNB's dividend at its current rate may no longer be sustainable for longer.

Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. They also estimate that the future payout ratio could reach 47% in the same time horizon, which is in a comfortable range for us.

LCNB Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.64 in 2014, and the most recent fiscal year payment was $0.88. This means that it has been growing its distributions at 3.2% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

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. Unfortunately things aren't as good as they seem. LCNB's earnings per share has shrunk at 19% a year over the past 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. 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 27% 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.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. 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. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 4 warning signs for LCNB that investors need to be conscious of moving forward. Is LCNB not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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