The board of Shore Bancshares, Inc. (NASDAQ:SHBI) has announced that it will pay a dividend on the 31st of May, with investors receiving $0.12 per share. Based on this payment, the dividend yield will be 4.1%, which is fairly typical for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Shore Bancshares' stock price has reduced by 35% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

View our latest analysis for Shore Bancshares

Shore Bancshares' Dividend Forecasted To Be Well Covered By Earnings

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

Shore Bancshares has established itself as a dividend paying company, given its 8-year history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Shore Bancshares' payout ratio of 30% is a good sign for current shareholders as this means that earnings decently cover dividends.

The next year is set to see EPS grow by 14.6%. Assuming the dividend continues along recent trends, we think the future payout ratio could be 31% by next year, which is in a pretty sustainable range.

Shore Bancshares Doesn't Have A Long Payment History

Shore Bancshares' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The annual payment during the last 8 years was $0.08 in 2015, and the most recent fiscal year payment was $0.48. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. Shore Bancshares has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Shore Bancshares has been growing its earnings per share at 16% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Shore Bancshares' prospects of growing its dividend payments in the future.

Shore Bancshares Looks Like A Great Dividend Stock

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.