We Wouldn't Be Too Quick To Buy Citizens Holding Company (NASDAQ:CIZN) Before It Goes Ex-Dividend

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 Citizens Holding Company (NASDAQ:CIZN) is about to go ex-dividend in just four days. Ex-dividend means that investors that purchase the stock on or after the 16th of December will not receive this dividend, which will be paid on the 31st of December.

Citizens Holding's next dividend payment will be US$0.24 per share. Last year, in total, the company distributed US$0.96 to shareholders. Looking at the last 12 months of distributions, Citizens Holding has a trailing yield of approximately 4.5% on its current stock price of $21.36. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Citizens Holding

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Its dividend payout ratio is 80% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in 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.

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

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. So we're not too excited that Citizens Holding's earnings are down 4.8% a year over the past 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 last 10 years, Citizens Holding has lifted its dividend by approximately 1.3% a year on average.

Final Takeaway

Has Citizens Holding got what it takes to maintain its dividend payments? We're not overly enthused to see Citizens Holding's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. Citizens Holding doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

So if you're still interested in Citizens Holding despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Case in point: We've spotted 1 warning sign for Citizens Holding you should be aware of.

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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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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