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The board of Ames National Corporation (NASDAQ:ATLO) has announced it will be reducing its dividend by 26% from last year's payment of $0.27 on the 15th of November, with shareholders receiving $0.20. This means the annual payment is 4.4% of the current stock price, which is above the average for the industry.
Check out our latest analysis for Ames National
Ames National Will Pay Out More Than It Is Earning
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.
Having distributed dividends for at least 10 years, Ames National has a long history of paying out a part of its earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and Ames National'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 Ames National's dividend at its current rate may no longer be sustainable for longer.
Looking forward, EPS could fall by 11.8% if the company can't turn things around from the last few years. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 122%, which is definitely a bit high to be sustainable going forward.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was $0.64, compared to the most recent full-year payment of $0.80. This means that it has been growing its distributions at 2.3% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.
Dividend Growth Potential Is Shaky
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Ames National's earnings per share has shrunk at 12% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
Ames National's Dividend Doesn't Look Great
To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.