Five Star Bancorp (NASDAQ:FSBC) Is Due To Pay A Dividend Of $0.20

The board of Five Star Bancorp (NASDAQ:FSBC) has announced that it will pay a dividend on the 13th of May, with investors receiving $0.20 per share. This means that the annual payment will be 3.7% of the current stock price, which is in line with the average for the industry.

Check out our latest analysis for Five Star Bancorp

Five Star Bancorp's Dividend Forecasted To Be Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time.

Having paid out dividends for only 3 years, Five Star Bancorp does not have much of a history being a dividend paying company. Based on Five Star Bancorp's last earnings report, calculating for its payout ratio equates to 29%, which means that the company covered its last dividend with comfortable room to spare.

EPS is set to fall by 22.7% over the next 3 years. Despite that, analysts estimate the future payout ratio could be 34% over the same time period, which is in a pretty comfortable range.

Five Star Bancorp Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 3 years, which isn't that long in the grand scheme of things. Since 2021, the annual payment back then was $0.60, compared to the most recent full-year payment of $0.80. This implies that the company grew its distributions at a yearly rate of about 10% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

Dividend Growth May Be Hard To Come By

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately things aren't as good as they seem. In the last five years, Five Star Bancorp's earnings per share has shrunk at approximately 8.0% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

An additional note is that the company has been raising capital by issuing stock equal to 24% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Five Star Bancorp is earning enough to cover the dividend, we are generally unimpressed with its future prospects. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Five Star Bancorp that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.