Don't Race Out To Buy Citizens & Northern Corporation (NASDAQ:CZNC) Just Because It's Going Ex-Dividend

Citizens & Northern Corporation (NASDAQ:CZNC) stock is about to trade ex-dividend in 3 days. If you purchase the stock on or after the 29th of January, you won't be eligible to receive this dividend, when it is paid on the 12th of February.

Citizens & Northern's next dividend payment will be US$0.27 per share, and in the last 12 months, the company paid a total of US$1.08 per share. Calculating the last year's worth of payments shows that Citizens & Northern has a trailing yield of 5.3% on the current share price of $20.46. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Citizens & Northern can afford its dividend, and if the dividend could grow.

View our latest analysis for Citizens & Northern

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. It paid out 83% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline.

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.

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. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Citizens & Northern has delivered 13% dividend growth per year on average over the past 10 years.

To Sum It Up

Should investors buy Citizens & Northern for the upcoming dividend? Earnings per share have not grown at all, and the company pays out a bit over half its profits to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

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. In terms of investment risks, we've identified 2 warning signs with Citizens & Northern and understanding them should be part of your investment process.

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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