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The board of West Bancorporation, Inc. (NASDAQ:WTBA) has announced that it will pay a dividend of $0.25 per share on the 21st of May. Based on this payment, the dividend yield on the company's stock will be 5.3%, which is an attractive boost to shareholder returns.
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West Bancorporation's Earnings Will Easily Cover The Distributions
If the payments aren't sustainable, a high yield for a few years won't matter that much.
West Bancorporation has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on West Bancorporation's last earnings report, the payout ratio is at a decent 65%, meaning that the company is able to pay out its dividend with a bit of room to spare.
The next year is set to see EPS grow by 12.2%. If the dividend continues along recent trends, we estimate the future payout ratio will be 62%, which is in the range that makes us comfortable with the sustainability of the dividend.
View our latest analysis for West Bancorporation
West Bancorporation Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The annual payment during the last 10 years was $0.48 in 2015, and the most recent fiscal year payment was $1.00. This works out to be a compound annual growth rate (CAGR) of approximately 7.6% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Dividend Growth May Be Hard To Achieve
The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. It's not great to see that West Bancorporation's earnings per share has fallen at approximately 3.3% per year over the past five years. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this can turn into a longer term trend.
Our Thoughts On West Bancorporation's Dividend
Overall, we think West Bancorporation is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.