The board of TowneBank (NASDAQ:TOWN) has announced that it will pay a dividend of $0.25 per share on the 11th of April. Based on this payment, the dividend yield will be 2.7%, which is fairly typical for the industry.

Check out our latest analysis for TowneBank

TowneBank's Dividend Forecasted To Be Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable.

TowneBank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but TowneBank's payout ratio of 46% is a good sign as this means that earnings decently cover dividends.

The next 3 years are set to see EPS grow by 73.9%. Analysts forecast the future payout ratio could be 34% over the same time horizon, which is a number we think the company can maintain.

TowneBank Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.44 in 2015, and the most recent fiscal year payment was $1.00. This implies that the company grew its distributions at a yearly rate of about 8.6% over that duration. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth May Be Hard To Achieve

The company's investors will be pleased to have been receiving dividend income for some time. However, TowneBank has only grown its earnings per share at 2.5% per annum over the past five years. TowneBank is struggling to find viable investments, so it is returning more 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.

TowneBank Looks Like A Great Dividend Stock

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 TowneBank that investors need to be conscious of moving forward. Is TowneBank 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.