Is It Smart To Buy Arrow Financial Corporation (NASDAQ:AROW) Before It Goes Ex-Dividend?

It looks like Arrow Financial Corporation (NASDAQ:AROW) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 2nd of March will not receive the dividend, which will be paid on the 13th of March.

Arrow Financial’s next dividend payment will be US$0.26 per share, and in the last 12 months, the company paid a total of US$1.04 per share. Looking at the last 12 months of distributions, Arrow Financial has a trailing yield of approximately 3.1% on its current stock price of $33.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Arrow Financial has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Arrow Financial

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 Arrow Financial’s payout ratio is modest, at just 41% of profit.

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.

Click here to see how much of its profit Arrow Financial paid out over the last 12 months.

NasdaqGS:AROW Historical Dividend Yield, February 26th 2020
NasdaqGS:AROW Historical Dividend Yield, February 26th 2020

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it’s a relief to see Arrow Financial earnings per share are up 9.2% per annum 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. In the past ten years, Arrow Financial has increased its dividend at approximately 3.3% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

To Sum It Up

From a dividend perspective, should investors buy or avoid Arrow Financial? 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. Overall, Arrow Financial looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

Curious about whether Arrow Financial has been able to consistently generate growth? Here’s a chart 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.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.

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