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 American River Bankshares (NASDAQ:AMRB) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 28th of January, you won’t be eligible to receive this dividend, when it is paid on the 12th of February.
American River Bankshares’s next dividend payment will be US$0.07 per share, on the back of last year when the company paid a total of US$0.28 to shareholders. Last year’s total dividend payments show that American River Bankshares has a trailing yield of 1.9% on the current share price of $14.95. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! 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. That’s why it’s good to see American River Bankshares paying out a modest 25% of its earnings.
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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 encouraging to see American River Bankshares has grown its earnings rapidly, up 21% a year for the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. American River Bankshares has seen its dividend decline 6.9% per annum on average over the past ten years, which is not great to see. American River Bankshares is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It’s unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
Should investors buy American River Bankshares for the upcoming dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, American River Bankshares appears to have some promise as a dividend stock, and we’d suggest taking a closer look at it.
Ever wonder what the future holds for American River Bankshares? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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.
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