The board of Bank of Marin Bancorp (NASDAQ:BMRC) has announced that it will pay a dividend on the 15th of February, with investors receiving $0.25 per share. This makes the dividend yield 5.1%, which will augment investor returns quite nicely.

Check out our latest analysis for Bank of Marin Bancorp

Bank of Marin Bancorp's Earnings Will Easily Cover The Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

Having distributed dividends for at least 10 years, Bank of Marin Bancorp has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Bank of Marin Bancorp's payout ratio of 80% is a good sign as this means that earnings decently cover dividends.

Looking forward, EPS is forecast to rise by 49.5% over the next 3 years. Analyst estimates also show the future payout ratio being 62% in the same 3 years which brings it into quite a comfortable range.

Bank of Marin Bancorp Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $0.36 in 2014 to the most recent total annual payment of $1.00. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Bank of Marin Bancorp's EPS has fallen by approximately 12% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Our Thoughts On Bank of Marin Bancorp's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Bank of Marin Bancorp'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. We would probably look elsewhere for an income investment.