FS Bancorp, Inc.'s (NASDAQ:FSBW) dividend will be increasing from last year's payment of the same period to $0.29 on 19th of February. Based on this payment, the dividend yield for the company will be 2.8%, which is fairly typical for the industry.

FS Bancorp's Earnings Will Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Having distributed dividends for at least 10 years, FS Bancorp has a long history of paying out a part of its earnings to shareholders. Based on FS Bancorp's last earnings report, the payout ratio is at a decent 26%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Looking forward, EPS is forecast to rise by 17.7% over the next 3 years. Analysts forecast the future payout ratio could be 24% over the same time horizon, which is a number we think the company can maintain.

FS Bancorp Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2016, the annual payment back then was $0.12, compared to the most recent full-year payment of $1.16. This means that it has been growing its distributions at 25% per annum over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, things aren't all that rosy. Although it's important to note that FS Bancorp's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time.

In Summary

Overall, this is a reasonable dividend, and it being raised is an added bonus. 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.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Is FS Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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.