Orrstown Financial Services, Inc. (NASDAQ:ORRF) will pay a dividend of $0.20 on the 14th of May. Based on this payment, the dividend yield will be 3.0%, which is fairly typical for the industry.

Check out our latest analysis for Orrstown Financial Services

Orrstown Financial Services' Earnings Will Easily Cover The Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much.

Orrstown Financial Services has a good history of paying out dividends, with its current track record at 9 years. Using data from its latest earnings report, Orrstown Financial Services' payout ratio sits at 24%, an extremely comfortable number that shows that it can pay its dividend.

The next year is set to see EPS grow by 15.2%. Assuming the dividend continues along recent trends, we think the future payout ratio could be 24% by next year, which is in a pretty sustainable range.

Orrstown Financial Services Doesn't Have A Long Payment History

Orrstown Financial Services' 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 dividend has gone from an annual total of $0.28 in 2015 to the most recent total annual payment of $0.80. This means that it has been growing its distributions at 12% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that Orrstown Financial Services has been growing its earnings per share at 18% a year over the past five years. Orrstown Financial Services definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Orrstown Financial Services' Dividend

Overall, we like to see the dividend staying consistent, and we think Orrstown Financial Services might even raise payments in the future. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. 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 Orrstown Financial Services that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.