Updated 3/6/25
Arrow Financial Corporation (NASDAQ: AROW) is a regional bank that has been serving communities in upstate New York for over a century. While it may not be a household name, this small bank has built a reputation for steady performance and a shareholder-friendly dividend policy.
For investors looking to generate income, AROW has long been considered a solid option. The company has a history of consistent dividend payments, and its current yield makes it an attractive choice in today’s market. But as with any investment, it’s important to dig deeper to understand both the strengths and potential risks before making a decision.
📊 Key Dividend Metrics
💰 Dividend Yield: 4.29% (Forward)
📈 5-Year Dividend Growth Rate: Moderate
🔄 Payout Ratio: 61.58% (Sustainable)
📅 Ex-Dividend Date: February 10, 2025
📆 Dividend Payment Date: February 24, 2025
🏛 Dividend Stability: Strong
Dividend Overview
Arrow Financial currently offers a forward dividend yield of 4.29%, which is well above its five-year average of 3.72%. That’s a sign that income-focused investors are getting a better yield than usual, which can be appealing in a market where stable dividends are in high demand.
What’s even more reassuring is that AROW has been paying dividends for decades without interruption. That level of consistency is something dividend investors appreciate, especially when market volatility is high.
The company has set its current annualized dividend at $1.12 per share, maintaining its reputation as a reliable income stock. While the yield is solid, it’s worth noting that AROW isn’t known for aggressive dividend hikes. Instead, its increases have been more gradual, reflecting the nature of its business as a conservative regional bank.
Dividend Growth and Safety
When it comes to dividend stocks, sustainability matters just as much as the yield itself. AROW’s payout ratio of 61.58% suggests that the company is in a comfortable position to continue paying dividends without putting its financial health at risk.
However, there are some warning signs to consider. The company’s earnings have taken a hit, with a 42.1% decline in quarterly earnings year-over-year. While this doesn’t immediately put the dividend in jeopardy, it does raise questions about future growth potential.
For now, AROW’s dividend appears safe, but investors should keep an eye on earnings trends. If profits continue to decline, the bank may face challenges in maintaining its current payout levels or increasing dividends over time.
Chart Analysis
Price Trend and Moving Averages
The 50-day moving average (orange line) has been trending downward, showing short-term weakness, while the 200-day moving average (blue line) has started to flatten out. The stock price has now dropped below both moving averages, which is often seen as a bearish sign.
Earlier in the chart, the stock experienced a strong uptrend, peaking above 32.50 before rolling over and entering a clear downtrend. The break below the 50-day moving average late last year marked a shift in momentum, and since then, the stock has struggled to regain upward traction.
The 200-day moving average, which typically acts as long-term support, was recently tested. While the price is hovering around this level, the fact that the 50-day moving average is sloping downward and crossing below the 200-day suggests continued weakness. This is known as a death cross, a technical signal that often points to prolonged downside pressure.
Recent Price Action
Over the last five trading sessions, the stock has been relatively stable but unable to break out of a tight range. The wicks on the candlesticks show some buying interest near 26, but sellers are keeping a lid on rallies. Today’s close at 26.08 is just barely above the recent lows, indicating hesitation among investors.
The high of 26.68 today suggests that buyers attempted to push the stock higher but couldn’t maintain momentum. The low of 25.98 shows that there is some support, but it isn’t particularly strong. This kind of price action often signals a consolidation phase, where the stock is waiting for a catalyst to determine its next move.
Volume Analysis
Trading volume is relatively low compared to the spikes seen in previous months. Noticeably, there were big volume spikes in July, October, and November, which likely represented institutional activity or major news events. However, current volume levels suggest that traders are cautious. There isn’t a clear rush to buy the dip, but at the same time, there isn’t an aggressive sell-off either.
When a stock declines on lower volume, it usually indicates that selling pressure isn’t overwhelming. But without strong volume on up-days, there’s also little conviction from buyers to push the price higher.
RSI (Relative Strength Index) Analysis
The RSI indicator is currently hovering in the lower range, but not quite in oversold territory. Typically, RSI levels below 30 suggest a stock is oversold and due for a rebound, while levels above 70 indicate overbought conditions. Right now, RSI is in a weak zone, meaning there isn’t enough momentum to drive a strong rally.
Back when the stock peaked, RSI was firmly in overbought territory, signaling that the run-up was due for a pullback. Since then, the RSI has gradually declined, mirroring the downward price action. This suggests that the stock is still under selling pressure and hasn’t yet reached a point where buyers are stepping in aggressively.
These observations suggest a stock that recently went through a bullish phase but has since lost momentum. Price action, moving averages, and technical indicators are signaling weakness, while volume remains relatively low. The next major move will depend on whether buyers step in near the current price level or if the selling continues.
Analyst Ratings
📊 Arrow Financial Corporation (NASDAQ: AROW) has recently garnered attention from analysts, leading to updates in price targets and recommendations. Currently, the consensus among analysts is a “Hold” rating, with an average 12-month price target of $31.00, indicating a potential upside from the current share price.
🔻 Recent Downgrades
In late December 2024, Hovde Group revised its outlook on Arrow Financial, lowering the price target from $34.50 to $32.00 while maintaining a “Market Perform” rating. This adjustment stemmed from concerns over the company’s declining revenue growth and a challenging interest rate environment, which could pressure net interest margins and overall profitability.
🔼 Recent Upgrades
In January 2025, Piper Sandler initiated coverage on Arrow Financial with a “Neutral” rating and set a price target of $32.00. The firm acknowledged Arrow Financial’s strong capital position and consistent dividend payouts as positive factors. However, they also noted potential challenges in loan growth and the competitive landscape, which could impact future earnings.
These balanced perspectives from analysts provide investors with a clearer view of Arrow Financial’s current standing and future prospects in an evolving financial landscape.
Earnings Report Summary
Arrow Financial Corporation recently released its latest earnings report, giving investors a look into how the company performed over the past quarter. The numbers were a bit of a mixed bag, with some challenges affecting the bottom line but also signs of resilience in certain areas.
For the fourth quarter of 2024, the company reported net income of $4.5 million, or $0.27 per share. That’s a drop from the previous year’s fourth-quarter results, when net income came in at $7.7 million with earnings per share of $0.46. For the full year, Arrow reported total net income of $29.7 million and an EPS of $1.77, keeping pace with last year’s performance.
A few unusual expenses impacted the company’s fourth-quarter results. Arrow took a $3.0 million pre-tax hit from a repositioning of its securities portfolio. There were also some costs related to rebranding and the merger of its two banking subsidiaries, totaling another $1.2 million in non-core expenses. Earlier in the year, the company also took on some additional costs for acquiring a new bank branch and insurance assets, which slightly weighed on earnings.
Despite these headwinds, Arrow’s management kept its commitment to rewarding shareholders, declaring a quarterly cash dividend of $0.28 per share, set to be paid out in late February.
Looking back at the third quarter, the company’s performance was stronger. Net income for that period was $9.0 million, or $0.53 per share, an improvement from the previous year’s $7.7 million and $0.46 per share. The boost came from a solid increase in net interest income, which rose by $3.1 million compared to the prior year. This was partially offset by slightly higher operating expenses.
Net interest income for Q3 hit $28.4 million, up 12.2% year-over-year, driven by loan growth and higher loan yields. Interest and dividend income also climbed to $49.4 million, reflecting an overall rise in earning assets. However, rising deposit costs did put some pressure on margins, though the company managed to maintain a net interest margin of 2.79%, up from 2.55% in the same quarter last year.
Non-interest income held steady at $8.1 million in Q3, with stronger wealth management fees and higher insurance commissions helping to offset the impact of one-time gains recorded in the previous year.
On the expense side, non-interest costs ticked up to $24.1 million, slightly higher than the prior year’s $23.5 million. Most of that increase came from one-time costs related to acquisitions and expansion efforts.
While the fourth quarter showed some weaker results due to non-core expenses, the company’s overall financial health remains intact. The dividend payout continues, and the bank’s ability to grow interest income despite higher costs is a sign that its core business remains strong. Investors will be watching closely to see how the company navigates challenges in the coming months.
Financial Health and Stability
On the balance sheet, Arrow Financial appears to be in good shape. The company has $154.55 million in cash, which provides a solid cushion for any short-term financial challenges. Additionally, total debt is relatively low at $33.6 million, meaning AROW isn’t heavily leveraged.
Profitability metrics also show some positives. The company’s profit margin stands at 22.07%, and its return on equity (ROE) is 7.61%. While these numbers aren’t eye-popping, they indicate that AROW is operating efficiently and generating steady profits.
The biggest concern here is revenue growth. The company’s quarterly revenue has declined by 4.6% year-over-year, signaling that it may be facing headwinds in loan demand or net interest income. If revenue continues to slide, it could impact the bank’s ability to grow its dividend in the future.
Valuation and Stock Performance
At its current price of $25.66 per share, AROW trades at a price-to-earnings (P/E) ratio of 14.75. That’s a reasonable valuation, especially for a bank stock, and suggests the stock isn’t overvalued. The price-to-book ratio of 1.09 also indicates that AROW is trading close to its book value, which is often seen as a fair price for financial stocks.
Over the past year, AROW has underperformed the broader market. The stock has dropped from a 52-week high of $34.63 to a low of $21.50. Right now, it’s trading below both its 50-day and 200-day moving averages, suggesting that sentiment around the stock has been weak.
For income investors, this could be an opportunity. When dividend yields rise above their historical average, it often signals a good entry point for long-term investors looking to collect steady income. However, it’s still important to assess whether the company’s earnings trends will improve.
Risks and Considerations
Like all investments, Arrow Financial comes with risks that investors should keep in mind.
Interest Rate Sensitivity
As a regional bank, AROW’s business is directly tied to interest rates. If the Federal Reserve lowers rates, the bank’s net interest margin could shrink, reducing profitability.
Declining Revenue Growth
A 4.6% drop in quarterly revenue is something to watch. If this trend continues, it could impact the bank’s ability to grow its dividend or maintain profitability.
Competition and Market Pressures
Small regional banks face intense competition from larger financial institutions and digital banks. If AROW struggles to attract new customers or grow its deposit base, it could impact long-term growth prospects.
Economic Downturn Risks
Like all banks, AROW is exposed to economic downturns. If a recession hits and loan defaults rise, the company could see earnings take a further hit, potentially affecting its dividend stability.
Final Thoughts
Arrow Financial has a strong track record of paying dividends and offers an above-average yield compared to its historical norms. Its balance sheet remains solid, and the payout ratio is at a manageable level.
However, investors should be mindful of the challenges the company is facing. Declining earnings and revenue growth could impact future dividend increases, and interest rate fluctuations add another layer of uncertainty.
For those who prioritize steady income, AROW remains a reasonable choice, but keeping an eye on earnings trends and the broader economic environment will be crucial in the months ahead.
Recent Comments