Commerce Bancshares, Inc. (NASDAQ:CBSH) will pay a dividend of $0.27 on the 25th of March. This means the annual payment will be 2.0% of the current stock price, which is lower than the industry average.

Check out our latest analysis for Commerce Bancshares

Commerce Bancshares' Dividend Forecasted To Be Well Covered By Earnings

Even a low dividend yield can be attractive if it is sustained for years on end.

Commerce Bancshares has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 28%, which means that Commerce Bancshares would be able to pay its last dividend without pressure on the balance sheet.

Over the next 3 years, EPS is forecast to fall by 12.0%. Fortunately, analysts forecast the future payout ratio to be 36% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.

Commerce Bancshares 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 annual payment during the last 10 years was $0.526 in 2014, and the most recent fiscal year payment was $1.03. This implies that the company grew its distributions at a yearly rate of about 6.9% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. However, Commerce Bancshares has only grown its earnings per share at 4.3% per annum over the past five years. If Commerce Bancshares is struggling to find viable investments, it always has the option to increase its payout ratio to pay more to shareholders.

We Really Like Commerce Bancshares' Dividend

Overall, we like to see the dividend staying consistent, and we think Commerce Bancshares might even raise payments in the future. The earnings easily cover the company's distributions, and the company is generating plenty of cash. 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. To that end, Commerce Bancshares has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. 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.