C&F Financial Corporation (NASDAQ:CFFI) will increase its dividend on the 1st of April to $0.46, which is 4.5% higher than last year's payment from the same period of $0.44. Although the dividend is now higher, the yield is only 2.3%, which is below the industry average.

See our latest analysis for C&F Financial

C&F Financial's Dividend Forecasted To Be Well Covered By Earnings

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

C&F Financial has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but C&F Financial's payout ratio of 29% is a good sign as this means that earnings decently cover dividends.

Over the next year, EPS could expand by 2.4% if recent trends continue. Assuming the dividend continues along recent trends, we think the future payout ratio could be 29% by next year, which is in a pretty sustainable range.

C&F Financial 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 2015, the dividend has gone from $1.20 total annually to $1.76. This means that it has been growing its distributions at 3.9% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend's Growth Prospects Are Limited

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings per share has been crawling upwards at 2.4% per year. While growth may be thin on the ground, C&F Financial could always pay out a higher proportion of earnings to increase shareholder returns.

C&F Financial Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for C&F Financial that investors need to be conscious of moving forward. 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.