Don't Buy Citizens & Northern Corporation (NASDAQ:CZNC) For Its Next Dividend Without Doing These Checks

By
Simply Wall St
Published
October 26, 2020
NasdaqCM:CZNC

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 & Northern Corporation (NASDAQ:CZNC) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 30th of October, you won't be eligible to receive this dividend, when it is paid on the 13th of November.

Citizens & Northern's upcoming dividend is US$0.27 a share, following on from the last 12 months, when the company distributed a total of US$1.08 per share to shareholders. Calculating the last year's worth of payments shows that Citizens & Northern has a trailing yield of 6.0% on the current share price of $17.91. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Citizens & Northern

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Its dividend payout ratio is 86% 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.

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.

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

historic-dividend
NasdaqCM:CZNC Historic Dividend October 26th 2020

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that Citizens & Northern's earnings are effectively flat over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Citizens & Northern has increased its dividend at approximately 1.2% a year on average.

Final Takeaway

From a dividend perspective, should investors buy or avoid Citizens & Northern? Earnings per share have not grown at all, and the company pays out a bit over half its profits to shareholders. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

With that being said, if you're still considering Citizens & Northern as an investment, you'll find it beneficial to know what risks this stock is facing. For example - Citizens & Northern has 3 warning signs we think you should be aware of.

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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