High Dividend 50: Ames National Corporation

Published on June 21st, 2024 by Nathan Parsh

High-yield stocks pay out dividends that are significantly more than market average dividends. For example, the S&P 500’s current yield is only ~1.3%, which is quite low on an absolute basis, but also on a historical basis.

High-yield stocks can be very helpful to shore up income after retirement. A $120,000 investment in stocks with an average dividend yield of 5% creates $500 a month in dividends.

We have created a spreadsheet of stocks (and closely related REITs and MLPs, etc.) with dividend yields of 5% or more to help investors find these high-yield stocks easily.

You can download your free full list of all high dividend stocks with 5%+ yields (along with important financial metrics such as dividend yield and payout ratio) by clicking on the link below:

Ames National Corporation (ATLO) is part of our ‘High Dividend 50’ series, as it has a current yield of 5.4%.

This article will review Ames National Corporation’s investment prospects.

Business Overview

Ames National Corporation is a U.S.-based bank holding company that owns and operates five bank subsidiaries in central Iowa. The subsidiaries include two national banks, First National Bank, Ames, Iowa, and State Bank & Trust Co., and three state-charted banks, Boone Bank & Trust Co., Reliance State Bank, and Iowa State Savings Bank.

The company provides a range of banking services to individuals, businesses, and municipal entities in Iowa. The bank’s lending activities consist primarily of short-term and medium-term commercial and agricultural real estate loans, residential real estate loans, agricultural and other business-related loans.

Ames National Corporation was founded in 1903, generates annual revenue of $54 million, and trades with a market capitalization of $179 million.

Ames National Corporation reported earnings results for the first quarter of 2024 on March 31st, 2024. Net income of $3.2 million, or $0.36 per share, compared unfavorably to net income of $5.1 million, or $0.57 per share, in the prior year.

The decrease in earnings is primarily the result of higher interest expense on deposits and other borrowed funds. This was partially offset by an increase in interest income on loans.

Ames National’s net interest margin contracted 10 basis points to 2.2%. Loan interest income improved $2.8 million due to higher average interest rates and a total loans increased 4% to $1.27 billion. Loan growth was supported by gains in agriculture and 1-4 family loan portfolios.

Non-interest income for the quarter was down $300K, or 11.5%, to $2.3 million. Deposits totaled $1.87 billion, which was a down 1% from $1.90 billion recorded a year ago. As of March 31st, 2024, Ames National Corporation had total assets of $2.19 billion.

Ames National Corporation expects earnings-per-share in a range of $1.45 to $1.55 for 2024, which would represent growth of 25% at the midpoint. Despite this, we forecast earnings growth of 3% per year for the next five years given recent results and the headwinds of higher interest expense.

Growth Prospects

Looking at the last 10 years, Ames National’s business performance has been underwhelming. The bank’s earnings-per-share have declined 3.4% annually over the last decade and it has failed to achieve year-over-year growth since 2021.

The last three years have been especially difficult for the bank.

Source: Investor Relations

Ames National Corporation has experienced a sizeable decline in earnings and earnings-per-share over the last few years even as the company’s loan portfolio and total assets have seen steady growth.

Source: Investor Relations 

The reason for this is that the bank’s income and revenue model are primarily based on the interest income from loans and investment securities, as well as fees and commissions from various financial services.

Last year’s earnings declined because interest expenses are rising faster than interest income, with deposit rates rising more quickly than rates on loans and investments.

On the plus side, Ames National Corporation has made strides to improve its customer engagement. Since 2019, loans, total assets, and deposits have surged 38%, 46%, and 55%, respectively.

Competitive Advantages & Recession Performance

As a small regional bank, Ames National Corporation does not have many strategic advantages compared to its large peer group. All the company’s service offerings can also be found at its competitors.

Ames National Corporation does have a well-entrenched position in the communities it serves. The company has also been in business for more than 100 years and offers it customers a very personal experience.

Like many financial companies, Ames National Corporation had a serious decline during the Great Recession:

2007 earnings-per-share: $1.17
2008 earnings-per-share: $0.67 (43% decline)
2009 earnings-per-share: $0.95 (42% increase)
2010 earnings-per-share: $1.37 (44% increase)

However, unlike many peers, Ames National Corporation quickly returned to growth in 2009 and established a new high for earnings-per-share by 2011.

Earnings-per-share also improved 11% from 2019 to 2020 as the company demonstrated its resiliency in the face of the Covid-19 pandemic.

Ames National Corporation’s performance during these difficult economic periods shows that it does have a sound business model.

Dividend Analysis

While earnings grew during the Great Recession, the company’s dividend did not. In fact, Ames National Corporation reduced its dividend by 64% in 2009. Since then, the dividend has typically increased by $0.01 per quarter per year.

This was the company’s growth pattern until the dividend was held steady in 2023. Ames National Corporation has maintained the same $0.27 per share quarterly payment for 10 consecutive quarters.

Because of the timing of the payments, Ames National Corporation has a dividend growth streak of 13 years, though that streak will end if the distribution is not raised for the November payment.

Even with the dividend pause, the company has a dividend compound annual growth rate of nearly 5% over the last decade.

Shares of Ames National Corporation yield 5.4%, which is one of the stock’s highest yields since at least 2014 and is more than four times the average yield of the S&P 500 Index.

Though dividend growth might not happen this year, we believe that the dividend is safe. With an annualized dividend of $1.08, the projected payout ratio for this year is 72%. For context, the payout ratio is usually around 50%, though last year it was at 90%.

Therefore, we do not project much in the way of dividend growth, but we do believe that the company will at least maintain its current distribution.

Final Thoughts

Ames National Corporation is one of the smallest names in our coverage universe, but the company has an extended history of providing financial services to its customers in Iowa.

Ames National Corporation offers a well above average dividend yield that we consider to be safe.

The bank’s business has suffered as higher interest expenses have more than offset gains from interest income. This has limited its results over the past few years. Ames National Corporation does project to see strong growth in 2024.

However, we do not anticipate more than low earnings growth after this year, which will limit total returns even with the attractive dividend yield. Shares of the company receive a hold rating as a result.

If you are interested in finding high-quality dividend growth stocks and/or other high-yield securities and income securities, the following Sure Dividend resources will be useful:

High-Yield Individual Security Research

Other Sure Dividend Resources