1st Source Corporation (NASDAQ:SRCE) has announced that it will be increasing its periodic dividend on the 15th of November to $0.34, which will be 6.3% higher than last year's comparable payment amount of $0.32. Even though the dividend went up, the yield is still quite low at only 2.9%.

View our latest analysis for 1st Source

1st Source's Earnings Will Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

1st Source has a long history of paying out dividends, with its current track record at a minimum of 10 years. While past records don't necessarily translate into future results, the company's payout ratio of 6.2% also shows that 1st Source is able to comfortably pay dividends.

Over the next 3 years, EPS is forecast to fall by 34.3%. Fortunately, analysts forecast the future payout ratio to be 34% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

1st Source Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the dividend has gone from $0.618 total annually to $1.28. This works out to be a compound annual growth rate (CAGR) of approximately 7.5% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that 1st Source has grown earnings per share at 11% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

1st Source Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that 1st Source is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for 1st Source that investors should know about before committing capital to this stock. 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.