The board of Auburn National Bancorporation, Inc. (NASDAQ:AUBN) has announced that it will pay a dividend of $0.27 per share on the 26th of December. This makes the dividend yield 4.8%, which will augment investor returns quite nicely.

Auburn National Bancorporation Will Pay Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained.

Having distributed dividends for at least 10 years, Auburn National Bancorporation has a long history of paying out a part of its earnings to shareholders. Despite this history however, the company's latest earnings report actually shows that it didn't have enough earnings to cover its dividends. This is an alarming sign for the sustainability of its dividends, as it may mean that Auburn National Bancorporationis pulling cash from elsewhere to keep its shareholders happy.

EPS is set to fall by 37.8% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 731%, which is definitely a bit high to be sustainable going forward.

Auburn National Bancorporation Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.86 in 2014 to the most recent total annual payment of $1.08. This works out to be a compound annual growth rate (CAGR) of approximately 2.3% a year over that time. 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 who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Auburn National Bancorporation's earnings per share has shrunk at 38% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.

The Dividend Could Prove To Be Unreliable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Auburn National Bancorporation's payments, as there could be some issues with sustaining them into the future. 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. This company is not in the top tier of income providing stocks.

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. 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.