Some of the world’s best investors stick to dividend portfolios. They know that a steady stream of income is a top wealth building strategy. And finding the best deals is vital. So today, we’re going to review another one of the best dividend stocks around. Let’s take a look at Community Bank System’s dividend history and safety…
Business Overview and Highlights
Community Bank System (NYSE: CBU) is a $3.3 billion business. The company is based out of New York, and it employs 2,700 people. Last year Community Bank System pulled in $586 million in sales and that breaks down to $220,000 per employee.
Community Bank System is a commercial bank serving customers in New York, Pennsylvania, Vermont, and Massachusetts. They recently increased their footprint by acquiring Kinderhook Bank Corp. in January. Community Bank System expects the merger to close in the during the third quarter of 2019.
On February 21, Community Bank System’s board of directors declared a quarterly cash dividend of $0.38 per share.
10-Year Dividend History
The company paid investors $0.88 per share a decade ago. Over the last 10 years, the dividend has climbed to $1.44. That’s a 64% increase and you can see the annual changes below…
The compound annual growth is 5% over 10 years… but over the last year, the dividend climbed 9.1%. The increase in dividend growth is a good sign. Community Bank System’s might work out as a great income investment. Let’s take a look at the yield…
Current Yield vs. 10-Year Average
Community Bank System’s long history of paying dividends makes it one of the best dividend stocks around. This also makes the dividend yield a great indicator of value. A higher yield is generally better for buyers. Sustainability is also vital, and we’ll look at that soon.
The dividend yield comes in at 2.37% and that’s below the 10-year average of 3.98%. The chart below shows the dividend yield over the last 10 years…
The lower yield shows that investors have bid up the company’s market value. They might be expecting higher growth and payouts. But more often than not, the dividend yield is mean reverting with share price changes.
Improved Dividend Safety Check
Many investors look at the payout ratio to determine dividend safety. They look at the dividend per share divided by the net income per share. So, a payout ratio of 60% would mean that for every $1 earns, it pays investors $0.60.
The payout ratio is a good indicator of dividend safety… but accountants can manipulate net income. They adjust for goodwill and other non-cash items. A better metric is free cash flow.
Here is Community Bank System’s payout ratio based on free cash flow over the last 10 years…
The ratio is fairly steady over the last 10 years and the trend is down. 2008 and 2009 were difficult years for most banks which explains Community Bank System’s high payout ratio. In 2009 they only had $30 million in free cash flow compared to 2010’s $81 million. The last reported year shows a payout ratio of 35.3%. This gives wiggle room for Community Bank System’s board of directors to raise the dividend.
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