Old Second Bancorp, Inc.'s (NASDAQ:OSBC) investors are due to receive a payment of US$0.05 per share on 9th of May. Including this payment, the dividend yield on the stock will be 1.4%, which is a modest boost for shareholders' returns.
Check out our latest analysis for Old Second Bancorp
Old Second Bancorp's Dividend Is Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, Old Second Bancorp's earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 84.6%. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.
Old Second Bancorp Doesn't Have A Long Payment History
Old Second Bancorp's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2016, the first annual payment was US$0.04, compared to the most recent full-year payment of US$0.20. This implies that the company grew its distributions at a yearly rate of about 31% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
The Dividend's Growth Prospects Are Limited
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. It's not great to see that Old Second Bancorp's earnings per share has fallen at approximately 3.2% per year over the past five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
The company has also been raising capital by issuing stock equal to 53% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
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. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We don't think Old Second Bancorp is a great stock to add to your portfolio if income is your focus.