Independent Bank Group, Inc. (NASDAQ:IBTX) will pay a dividend of $0.38 on the 16th of May. This means the dividend yield will be fairly typical at 3.9%.

View our latest analysis for Independent Bank Group

Independent Bank Group's Payment Expected To Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important.

Having distributed dividends for at least 10 years, Independent Bank Group has a long history of paying out a part of its earnings to shareholders. Based on Independent Bank Group's last earnings report, the payout ratio is at a decent 60%, meaning that the company is able to pay out its dividend with a bit of room to spare.

The next year is set to see EPS grow by 27.3%. If the dividend continues on this path, the future payout ratio could be 56% by next year, which we think can be pretty sustainable going forward.

Independent Bank Group Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.24 in 2014, and the most recent fiscal year payment was $1.52. This works out to be a compound annual growth rate (CAGR) of approximately 20% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Dividend Growth Is Doubtful

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Independent Bank Group's EPS has declined at around 9.1% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On Independent Bank Group's Dividend

Overall, a consistent dividend is a good thing, and we think that Independent Bank Group has the ability to continue this into the future. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Given that earnings are not growing, the dividend does not look nearly so attractive. Businesses can change though, and we think it would make sense to see what analysts are forecasting for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.