Updated 3/5/25
Alerus Financial Corporation (NASDAQ: ALRS) is a regional financial services company with a strong presence in banking, retirement planning, wealth management, and mortgage services. Based in Grand Forks, North Dakota, Alerus has built a reputation as a reliable, community-focused financial institution. While it may not be as well-known as larger banks, it has a solid track record of delivering steady financial results and returning value to shareholders through dividends.
With a market capitalization of nearly $500 million, Alerus is considered a small-cap stock in the financial sector. The company has remained stable despite economic fluctuations and continues to reward investors with consistent dividend payments. For those seeking steady income, it’s important to assess the sustainability and growth potential of its dividend.
Key Dividend Metrics
📈 Forward Dividend Yield: 4.07%
💰 Annual Dividend Rate: $0.80 per share
📅 Next Ex-Dividend Date: March 14, 2025
💵 Upcoming Dividend Payment Date: April 11, 2025
🛡️ Payout Ratio: 80.61%
📊 5-Year Average Dividend Yield: 3.10%
📉 Trailing Dividend Yield: 4.02%
🏦 Price-to-Book Ratio: 1.00
Dividend Overview
Alerus Financial has positioned itself as a shareholder-friendly company by maintaining a strong dividend yield. Currently offering 4.07%, its dividend is notably higher than its five-year average of 3.10%, making it an appealing option for income-focused investors.
The payout ratio, however, stands at 80.61%, meaning a large portion of earnings is distributed as dividends. While this suggests a strong commitment to rewarding shareholders, it also raises questions about how much room there is for future dividend growth. A company paying out such a high percentage of its earnings must ensure its profits remain stable to sustain or increase dividend payments.
Investors planning to capture the next dividend must own shares before the March 14, 2025, ex-dividend date. The payment will be made on April 11, 2025.
Dividend Growth and Safety
Alerus has demonstrated a commitment to dividend stability rather than rapid growth. While its dividend has remained consistent, the company has not aggressively increased payouts over time.
Looking at past trends, its five-year average dividend yield sits lower than the current yield, which may indicate that the stock price has dipped, making the dividend appear more attractive. Although a high yield can be a positive for income investors, it’s also a sign that the market may be concerned about the company’s future earnings potential.
One key factor to watch is the payout ratio. At 80.61%, Alerus is distributing a significant portion of its earnings to shareholders. This is relatively high for a financial institution, meaning the company may have less flexibility to increase dividends unless earnings grow. If profits decline, Alerus could be forced to cut or freeze its dividend to maintain financial stability.
Chart Analysis
The stock price for Alerus Financial Corporation (ALRS) has been in a clear downtrend over the past few months. The 50-day moving average (orange line) has been declining and recently crossed below the 200-day moving average (blue line), which is often considered a bearish signal known as a death cross. This suggests that the stock may continue to experience downward pressure unless buyers step in to reverse momentum.
Looking at price action, ALRS has tested levels around $19.50 after previously trading near $24.00 at its recent highs. The price has broken below both moving averages, indicating that sellers are in control for now. Volume appears relatively low, except for a few spikes, which may have been related to earnings announcements or other news events.
The Relative Strength Index (RSI) at the bottom of the chart shows that the stock is approaching oversold territory, sitting near the 30 level. This suggests that selling momentum has been strong, but it also raises the possibility of a short-term bounce if buyers start stepping in.
In the last five trading sessions, the candles have shown lower highs and lower lows, with wicks suggesting there has been some buying interest at lower prices, but not enough to sustain a reversal. If the stock fails to hold support at $19.50, it could see further downside toward the $18.00 range. However, if buyers emerge and push the price back above the 50-day moving average, sentiment could shift more positively.
Analyst Ratings
📈 Upgrades:
🔹 Raymond James: Recently upgraded ALRS from Market Perform to Outperform with a price target of $24. This move was driven by improving financial metrics and a stronger outlook for earnings growth. Analysts at Raymond James cited cost efficiencies, solid loan portfolio management, and expanding financial services as key drivers behind the upgrade.
🔹 Hovde Group: Previously, Hovde Group also upgraded Alerus Financial from Market Perform to Outperform, setting a higher price target of $28. The firm pointed to strong earnings performance and successful execution of strategic initiatives that positioned the company well for future growth.
📉 Downgrades:
🔻 Raymond James: In a previous assessment, Raymond James downgraded ALRS from Outperform to Market Perform due to concerns about macroeconomic uncertainties and potential headwinds in the banking sector. The downgrade reflected worries about loan growth sustainability and net interest margin pressure in a rising rate environment.
🔻 Hovde Group: At a later date, Hovde Group revised its outlook, moving ALRS back to Market Perform from Outperform. The firm noted that valuation concerns and overall market conditions had shifted, prompting a more cautious stance on the stock’s near-term performance.
🎯 Consensus Price Target:
Analysts covering ALRS have a 12-month average price target of $23.40, with the range spanning from $23.00 to $24.00. The consensus rating currently stands at Hold, reflecting a balanced mix of optimism regarding earnings growth and caution over external economic pressures.
The varied outlook from analysts suggests that while Alerus Financial has made meaningful progress in strengthening its business, external risks and market conditions continue to play a significant role in shaping investor sentiment.
Earnings Report Summary
Alerus Financial wrapped up the fourth quarter of 2024 with solid growth, though not without a few challenges along the way. The company reported net income of $3.2 million, translating to $0.13 per diluted share. While this was a step down from the $5.2 million earned in the previous quarter, it was a big turnaround from the same period last year, when the company reported a loss of $14.8 million.
One of the biggest highlights of the quarter was Alerus completing its largest acquisition yet—the purchase of HMN Financial. This move had an immediate impact, driving strong growth in both loans and deposits. By the end of the quarter, total loans had jumped 31.7% to hit $4.0 billion, while total deposits saw the same percentage increase, reaching $4.4 billion. Non-interest-bearing deposits, which are a key driver of profitability, rose even more sharply, up 37.4% to $903.5 million.
The company’s net interest income saw a major boost as well, climbing nearly 70% to $38.3 million. This was fueled by loan growth, lower interest expenses on deposits, and the benefits of the HMN Financial acquisition. As a result, the net interest margin expanded significantly, reaching 3.20%, a nearly one percentage point improvement from the prior quarter.
Noninterest income also saw an uptick, rising 19.4% to $33.9 million. Mortgage banking revenue was a standout, with a $1.1 million increase thanks to higher loan originations and improved margins. Wealth management and retirement services revenue also grew, benefiting from the expanded client base following the acquisition.
On the expense side, operating costs rose by 32% to $56.0 million. Much of this increase was tied to one-time acquisition costs, including higher salaries, professional fees, and technology expenses related to integrating HMN Financial. Even with these costs, Alerus showed progress in streamlining operations, with its efficiency ratio improving to 69% from 77.7% in the previous quarter.
One area that saw a big jump was the provision for credit losses, which increased to $12.0 million from $1.7 million. This was largely due to the acquisition, as well as an increase in loan balances and some nonaccrual loans. Net charge-offs also rose slightly, but nothing that appeared to be a major red flag.
Capital ratios dipped as expected following the acquisition but remained at healthy levels. The company expects to rebuild capital in 2025 while continuing to grow its business.
Overall, it was a quarter of big moves for Alerus, with significant expansion through acquisition, strong loan and deposit growth, and improved efficiency. While expenses were higher due to integration costs, the long-term impact of the HMN Financial acquisition could set the company up for stronger earnings momentum in the future.
Financial Health and Stability
A company’s ability to maintain and grow its dividend depends on its overall financial strength. Alerus has some key indicators that suggest stability, though there are areas that warrant attention.
Profit margins are relatively solid at 10.34%, and the company maintains a reasonable cash balance of $64.55 million. However, return on equity (ROE) is somewhat low at 4.86%, suggesting the company isn’t generating exceptionally high returns on shareholder investments.
Debt is another important factor. Alerus carries $317.02 million in total debt, which isn’t unmanageable but could limit financial flexibility. If economic conditions shift or interest rates fluctuate, Alerus may need to carefully balance debt management with maintaining shareholder payouts.
Overall, while the company remains financially stable, it is not positioned for aggressive dividend growth without improvements in earnings.
Valuation and Stock Performance
Alerus appears to be fairly valued based on several key metrics. Its price-to-book (P/B) ratio stands at 1.00, meaning the stock is trading in line with its book value. This suggests that investors view its assets and earnings potential as reasonably valued.
The price-to-earnings (P/E) ratio of 20.04 is slightly above the norm for regional banks, indicating that investors may expect moderate growth. At the same time, the price-to-sales ratio sits at 1.90, reflecting a reasonable valuation compared to revenue generation.
Stock price movement over the past year shows some volatility. Alerus has traded between $17.99 and $24.41, with the current price sitting at $19.39. Notably, it is trading below both its 50-day and 200-day moving averages, which suggests a period of recent weakness. While this may concern some investors, those looking for dividend income might see it as an opportunity to buy at a discount.
Risks and Considerations
Every investment comes with risks, and Alerus is no exception.
🚩 The payout ratio is relatively high, meaning dividend growth may be limited unless earnings increase.
🚩 As a financial institution, Alerus is sensitive to interest rate changes, which can impact profitability.
🚩 The stock has declined from its 52-week high, which could indicate concerns about earnings stability.
🚩 The company carries a notable amount of debt, which requires careful management to sustain dividends.
On the flip side, there are positive factors to consider:
✅ The 4.07% dividend yield is higher than its historical average, making it attractive for income-focused investors.
✅ Alerus maintains a diversified business model across banking, retirement services, and wealth management.
✅ The stock is trading at book value, which could offer some downside protection.
Final Thoughts
Alerus Financial offers an appealing dividend yield and a steady history of shareholder returns. However, investors should keep in mind that its high payout ratio could limit future growth. The stock is trading at a reasonable valuation, but its recent price decline may indicate investor caution about its earnings outlook.
For those seeking steady dividend income, Alerus remains a viable option, though closely monitoring its earnings performance and financial stability will be key. While it may not provide rapid dividend increases, it does offer a reliable payout in the financial sector. Investors looking for strong dividend growth may want to consider alternatives with lower payout ratios and higher earnings expansion.
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