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 ~1.2%.

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 an average of $500 a month in dividends.

Next on our list of high-dividend stocks to review is Auburn National Bancorporation, Inc. (AUBN).

Auburn is part of our ‘High Dividend 50’ series, where we cover the 50 highest yielding stocks in the Sure Analysis Research Database.

Business Overview

Auburn National Bancorporation, Inc., headquartered in Auburn, Alabama, has been a stalwart in the local financial landscape since its establishment in 1907.

Operating primarily through its subsidiary, AuburnBank, the company offers a wide array of financial services tailored to both individual and commercial clients.

AuburnBank’s offerings include traditional banking products such as checking and savings accounts, personal and commercial loans, mortgages, and comprehensive wealth management services.

With a strategic focus on personalized customer service and deep community engagement, AuburnBank has built a strong presence throughout East Alabama, maintaining multiple branch locations to serve its diverse client base effectively.

Auburn National Bancorporation has a solid financial foundation, characterized by prudent risk management practices and a steadfast dedication to sustainable growth.

This approach has enabled the company to navigate economic cycles successfully while delivering consistent value to shareholders through steady dividend payments and strategic expansion initiatives.

Auburn National Bancorporation announced its first quarter 2024 financial results, reporting a net income of $1.4 million, or $0.39 per share. This marked a significant recovery from the fourth quarter of 2023, which saw a net loss of $(4.0) million, or $(1.14) per share, largely due to strategic balance sheet adjustments involving the sale of low-yielding securities.

Excluding this one-time loss, net earnings for the fourth quarter of 2023 would have been $0.7 million, or $0.21 per share.

Key highlights for the first quarter of 2024 include a robust net interest income (tax-equivalent) of $6.7 million, representing an 8% increase from the previous quarter. The net interest margin (tax-equivalent) also improved significantly, rising by 39 basis points to 3.04%.

This enhancement was driven by reduced deposit costs, an improved asset mix, and higher yields on interest-earning assets. Additionally, the company reported annualized loan growth of 7%.

Credit quality remained robust with nonperforming assets accounting for only 0.09% of total assets. Period-end deposits increased by $3.4 million to reach $899.7 million.

Growth Prospects

Auburn National Bancorporation, Inc. shows promising growth prospects driven by its resilient financial performance and strategic initiatives.

The company’s strong rebound in net income and robust net interest income growth underscore its ability to navigate challenges and capitalize on opportunities.

With a solid 7% annualized loan growth, disciplined cost management, and a focus on maintaining strong credit quality (0.09% nonperforming assets), Auburn National Bancorporation is well-positioned for continued expansion in the regional banking sector.

The bank emphasizes prudent risk management and customer-centric strategies to sustain profitability and enhance shareholder value.

Its commitment to optimizing its net interest margin (3.04% in Q1 2024) and growing deposit base ($899.7 million) further strengthens its foundation for future growth.

Competitive Advantages & Recession Performance

Auburn National Bancorporation has several competitive advantages that bolster its performance, particularly during economic downturns.

This regional focus enables the company to understand better and meet the financial needs of its customers, enhancing overall customer satisfaction and retention.

Next, Auburn National Bancorporation’s emphasis on prudent risk management and conservative lending practices contributes to its resilience during economic recessions.

The company’s historically low nonperforming assets ratio (0.09% as of Q1 2024) reflects its ability to maintain strong credit quality despite challenging economic conditions.

Auburn National Bancorporation’s competitive advantages lie in its community-centric approach, robust risk management practices, and strong credit quality.

The company performed poorly during the previous major economic downturn, the Great Recession of 2008-2009:

• 2008 earnings-per-share: $1.81
• 2009 earnings-per-share: $0.66
• 2010 earnings-per-share: $1.47

While earnings-per-share declined significantly in 2009, the bank remained profitable, which allowed it to continue raising its dividend until EPS recovered.

These factors differentiate it in the regional banking sector and contribute to its ability to perform consistently well throughout economic cycles.

Dividend Analysis

Auburn National has increased its dividend for 22 consecutive years. The current annual dividend is $1.08 per share. At ~$18 per share, Auburn National Bancorporation, Inc. has a high yield of 6.1%.

Given Auburn National Bancorporation’s outlook for 2024, EPS is expected to be $1.90. As a result, the company is expected to pay out roughly 56% of its EPS to shareholders in dividends.

The dividend appears to be sustainable, and we estimate the company will grow it at a 2% rate going forward. Therefore, the 6.1% dividend yield is desirable for investors focusing primarily on income.

Final Thoughts

Auburn National Bancorporation is a small community bank in East Alabama. Investors could be attracted to the stock based on its dividend growth track record and the above-average dividend yield of 6.1%.

There are two elements to monitor: the dividend growth rate, which is currently outpacing the earnings growth rate, and whether the bank will return to its historical earnings level based on the balance sheet repositioning strategy.

The share price is down by approximately 17% over the last year, but this has elevated the stock’s dividend yield above 6%.

We estimate a total return potential of 10.0% per year for the next five years based on a 2% earnings-per-share growth, the dividend yield, and a valuation tailwind. In addition, AUBN stock has a secure dividend payout.

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