Should You Buy Central Valley Community Bancorp (NASDAQ:CVCY) For Its Upcoming Dividend?

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Central Valley Community Bancorp (NASDAQ:CVCY) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 11th of February to receive the dividend, which will be paid on the 26th of February.

Central Valley Community Bancorp's upcoming dividend is US$0.11 a share, following on from the last 12 months, when the company distributed a total of US$0.44 per share to shareholders. Based on the last year's worth of payments, Central Valley Community Bancorp has a trailing yield of 2.6% on the current stock price of $17.14. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Central Valley Community Bancorp can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Central Valley Community Bancorp

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Central Valley Community Bancorp's payout ratio is modest, at just 27% 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?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Central Valley Community Bancorp's earnings per share have risen 10% 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. Since the start of our data, eight years ago, Central Valley Community Bancorp has lifted its dividend by approximately 10% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Has Central Valley Community Bancorp got what it takes to maintain its dividend payments? Companies like Central Valley Community Bancorp that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. 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, Central Valley Community Bancorp appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 3 warning signs for Central Valley Community Bancorp (of which 1 is a bit concerning!) you should know about.

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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