Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that Ames National Corporation (NASDAQ:ATLO) is about to go ex-dividend in just four days. This means that investors who purchase shares on or after the 30th of July will not receive the dividend, which will be paid on the 14th of August.
Ames National’s next dividend payment will be US$0.25 per share, and in the last 12 months, the company paid a total of US$1.00 per share. Looking at the last 12 months of distributions, Ames National has a trailing yield of approximately 5.2% on its current stock price of $19.05. If you buy this business for its dividend, you should have an idea of whether Ames National’s dividend is reliable and sustainable. So we need to investigate whether Ames National can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Ames National paid out 54% of its earnings to investors last year, a normal payout level for most businesses.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It’s not encouraging to see that Ames National’s earnings are effectively flat over the past five years. We’d take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Ames National has delivered an average of 9.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.
To Sum It Up
Is Ames National worth buying for its dividend? Ames National has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. We’re unconvinced on the company’s merits, and think there might be better opportunities out there.
Want to learn more about Ames National’s dividend performance? Check out this visualisation of its historical revenue and earnings growth.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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