Readers hoping to buy FNCB Bancorp, Inc. (NASDAQ:FNCB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 29th of May to receive the dividend, which will be paid on the 15th of June.
FNCB Bancorp’s upcoming dividend is US$0.055 a share, following on from the last 12 months, when the company distributed a total of US$0.22 per share to shareholders. Based on the last year’s worth of payments, FNCB Bancorp has a trailing yield of 3.7% on the current stock price of $5.95. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it’s 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. That’s why it’s good to see FNCB Bancorp paying out a modest 39% of its earnings.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we’re concerned to see FNCB Bancorp’s earnings per share have dropped 8.6% a year over the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, FNCB Bancorp has lifted its dividend by approximately 11% a year on average.
The Bottom Line
Has FNCB Bancorp got what it takes to maintain its dividend payments? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we’re on the fence about its dividend prospects.
However if you’re still interested in FNCB Bancorp as a potential investment, you should definitely consider some of the risks involved with FNCB Bancorp. We’ve identified 4 warning signs with FNCB Bancorp (at least 1 which is a bit unpleasant), and understanding these should be part of your investment process.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting 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. Thank you for reading.