Colony Bankcorp, Inc. (NYSE:CBAN) has announced that it will be increasing its dividend from last year's comparable payment on the 25th of February to $0.12. Despite this raise, the dividend yield of 2.5% is only a modest boost to shareholder returns.

Colony Bankcorp's Earnings Will Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

Colony Bankcorp has established itself as a dividend paying company, given its 9-year history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio of 29%shows that Colony Bankcorp would be able to pay its last dividend without pressure on the balance sheet.

The next 3 years are set to see EPS grow by 60.8%. The future payout ratio could be 22% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Colony Bankcorp Is Still Building Its Track Record

It is great to see that Colony Bankcorp has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of $0.10 in 2017 to the most recent total annual payment of $0.48. This implies that the company grew its distributions at a yearly rate of about 19% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Colony Bankcorp hasn't seen much change in its earnings per share over the last five years. If Colony Bankcorp is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

We should note that Colony Bankcorp has issued stock equal to 21% 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.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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.