The board of Old National Bancorp (NASDAQ:ONB) has announced that it will pay a dividend of $0.14 per share on the 16th of June. This means the annual payment will be 2.5% of the current stock price, which is lower than the industry average.
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If it is predictable over a long period, even low dividend yields can be attractive.
Having distributed dividends for at least 10 years, Old National Bancorp has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Old National Bancorp’s payout ratio of 32% is a good sign as this means that earnings decently cover dividends.
Looking forward, EPS is forecast to rise by 90.1% over the next 3 years. The future payout ratio could be 21% over that time period, according to analyst estimates, which is a good look for the future of the dividend.
View our latest analysis for Old National Bancorp
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.44 in 2015, and the most recent fiscal year payment was $0.56. This implies that the company grew its distributions at a yearly rate of about 2.4% 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.
Some investors will be chomping at the bit to buy some of the company’s stock based on its dividend history. However, Old National Bancorp has only grown its earnings per share at 4.2% per annum over the past five years. While growth may be thin on the ground, Old National Bancorp could always pay out a higher proportion of earnings to increase shareholder returns.
An additional note is that the company has been raising capital by issuing stock equal to 16% 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.
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.
