Investar Holding Corporation (NASDAQ:ISTR) is about to trade ex-dividend in the next four days. Investors can purchase shares before the 2nd of October in order to be eligible for this dividend, which will be paid on the 31st of October.
Investar Holding’s upcoming dividend is US$0.065 a share, following on from the last 12 months, when the company distributed a total of US$0.24 per share to shareholders. Calculating the last year’s worth of payments shows that Investar Holding has a trailing yield of 2.1% on the current share price of $12.6. 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! We need to see whether the dividend is covered by earnings and if it’s growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Investar Holding paid out just 20% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
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 fall far enough, the company could be forced to cut its dividend. This is why it’s a relief to see Investar Holding earnings per share are up 4.5% per annum over the last five years.
Investar Holding also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It’s hard to grow dividends per share when a company keeps creating new shares.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the past six years, Investar Holding has increased its dividend at approximately 46% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Is Investar Holding worth buying for its dividend? Investar Holding has seen its earnings per share grow slowly in recent years, and the company reinvests more than half of its profits in the business, which generally bodes well for its future prospects. We think this is a pretty attractive combination, and would be interested in investigating Investar Holding more closely.
On that note, you’ll want to research what risks Investar Holding is facing. Every company has risks, and we’ve spotted 2 warning signs for Investar Holding you should know about.
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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