It looks like Ames National Corporation (NASDAQ:ATLO) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 31st of July will not receive the dividend, which will be paid on the 15th of August.
Ames National’s next dividend payment will be US$0.24 per share, and in the last 12 months, the company paid a total of US$0.96 per share. Based on the last year’s worth of payments, Ames National has a trailing yield of 3.5% on the current stock price of $27.59. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Ames National’s payout ratio is modest, at just 50% of profit.
Generally speaking, the lower a company’s payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we’re encouraged by the steady growth at Ames National, with earnings per share up 4.7% on average over the last five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Ames National has seen its dividend decline 1.5% per annum on average over the past 10 years, which is not great to see.
The Bottom Line
From a dividend perspective, should investors buy or avoid Ames National? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. In summary, Ames National appears to have some promise as a dividend stock, and we’d suggest taking a closer look at it.
Want to learn more about Ames National’s dividend performance? Check out this visualisation of its historical revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.