Horizon Bancorp, Inc. (NASDAQ:HBNC) will pay a dividend of $0.16 on the 18th of April. This means the annual payment is 4.2% of the current stock price, which is above the average for the industry.

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Horizon Bancorp's Payment Expected To Have Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

Horizon Bancorp 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 Horizon Bancorp's payout ratio of 79% is a good sign as this means that earnings decently cover dividends.

The next 3 years are set to see EPS grow by 152.2%. Analyst estimates also show the future payout ratio being 36% in the same 3 years which brings it into quite a comfortable range.

Check out our latest analysis for Horizon Bancorp

Horizon Bancorp Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the dividend has gone from $0.196 total annually to $0.64. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

The Dividend Has Limited Growth Potential

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Earnings per share has been sinking by 12% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into 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.

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. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think Horizon Bancorp is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Horizon Bancorp that investors should take into consideration. Is Horizon Bancorp 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.