Dime Community Bancshares' (NASDAQ:DCOM) Dividend Will Be $0.25

Dime Community Bancshares, Inc. (NASDAQ:DCOM) has announced that it will pay a dividend of $0.25 per share on the 24th of July. This means that the annual payment will be 3.4% of the current stock price, which is in line with the average for the industry.

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Dime Community Bancshares Will Pay Out More Than It Is Earning

Solid dividend yields are great, but they only really help us if the payment is sustainable.

Having distributed dividends for at least 10 years, Dime Community Bancshares has a long history of paying out a part of its earnings to shareholders. But while this history shows that the company was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company did not make enough earnings to cover its dividend payout. This is an alarming sign for the sustainability of its dividends, as it may mean that Dime Community Bancsharesis pulling cash from elsewhere to keep its shareholders happy.

The next 12 months is set to see EPS grow by 75.7%. Assuming the dividend continues along recent trends, we think the future payout ratio could reach 100%, which probably can't continue putting some pressure on the balance sheet.

View our latest analysis for Dime Community Bancshares

Dime Community Bancshares Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $0.864 in 2015, and the most recent fiscal year payment was $1.00. This implies that the company grew its distributions at a yearly rate of about 1.5% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Earnings per share has been sinking by 17% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. 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 becomes a long term trend.

We should note that Dime Community Bancshares has issued stock equal to 12% of shares outstanding. 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.

The Dividend Could Prove To Be Unreliable

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 Dime Community Bancshares 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Dime Community Bancshares that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.