Is It Smart To Buy ChoiceOne Financial Services, Inc. (NASDAQ:COFS) Before It Goes Ex-Dividend?

ChoiceOne Financial Services, Inc. (NASDAQ:COFS) stock is about to trade ex-dividend in 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase ChoiceOne Financial Services' shares before the 14th of March to receive the dividend, which will be paid on the 31st of March.

The company's next dividend payment will be US$0.28 per share, and in the last 12 months, the company paid a total of US$1.12 per share. Based on the last year's worth of payments, ChoiceOne Financial Services has a trailing yield of 3.7% on the current stock price of US$30.61. If you buy this business for its dividend, you should have an idea of whether ChoiceOne Financial Services's dividend is reliable and sustainable. So we need to investigate whether ChoiceOne Financial Services can afford its dividend, and if the dividend could grow.

See our latest analysis for ChoiceOne Financial Services

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 ChoiceOne Financial Services's payout ratio is modest, at just 33% of profit.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see ChoiceOne Financial Services's earnings per share have risen 13% per annum over the last five years.

We'd also point out that ChoiceOne Financial Services issued a meaningful number of new shares in the past year. 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. ChoiceOne Financial Services has delivered an average of 8.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Final Takeaway

Is ChoiceOne Financial Services an attractive dividend stock, or better left on the shelf? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. In summary, ChoiceOne Financial Services appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

While it's tempting to invest in ChoiceOne Financial Services for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for ChoiceOne Financial Services that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.