The board of ChoiceOne Financial Services, Inc. (NASDAQ:COFS) has announced that it will be increasing its dividend by 3.7% on the 31st of December to $0.28, up from last year's comparable payment of $0.27. The payment will take the dividend yield to 2.9%, which is in line with the average for the industry.

See our latest analysis for ChoiceOne Financial Services

ChoiceOne Financial Services' Earnings Will Easily Cover The Distributions

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

ChoiceOne Financial Services has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 34%, which means that ChoiceOne Financial Services would be able to pay its last dividend without pressure on the balance sheet.

Over the next 3 years, EPS is forecast to expand by 29.9%. Analysts estimate the future payout ratio will be 29% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

ChoiceOne Financial Services 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. The dividend has gone from an annual total of $0.508 in 2014 to the most recent total annual payment of $1.08. This works out to be a compound annual growth rate (CAGR) of approximately 7.8% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

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 ChoiceOne Financial Services has been growing its earnings per share at 11% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

An additional note is that the company has been raising capital by issuing stock equal to 19% 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.

We Really Like ChoiceOne Financial Services' Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 ChoiceOne Financial Services that investors should know about before committing capital to this stock. Is ChoiceOne Financial Services not quite the opportunity you were looking for? Why not check out our selection of top 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.