The board of Arrow Financial Corporation (NASDAQ:AROW) has announced that it will be paying its dividend of $0.30 on the 25th of February, an increased payment from last year's comparable dividend. This takes the annual payment to 3.5% of the current stock price, which is about average for the industry.

Arrow Financial's Dividend Forecasted To Be Well Covered By Earnings

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

Arrow Financial has a long history of paying out dividends, with its current track record at a minimum of 10 years. Based on Arrow Financial's last earnings report, the payout ratio is at a decent 54%, 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 85.1% over the next 3 years. Analysts estimate the future payout ratio will be 33% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Arrow Financial Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.774 in 2016, and the most recent fiscal year payment was $1.20. This means that it has been growing its distributions at 4.5% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Arrow Financial May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. However, Arrow Financial's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. 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. However, there are other things to consider for investors when analysing stock performance. You can also discover whether shareholders are aligned with insider interests by checking our visualisation of insider shareholdings and trades in Arrow Financial stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.