Stock Analysis

Why Dividend Hunters Love Citizens Community Bancorp, Inc. (NASDAQ:CZWI)

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NasdaqGM:CZWI
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Dividend paying stocks like Citizens Community Bancorp, Inc. (NASDAQ:CZWI) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. On the other hand, investors have been known to buy a stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.

Investors might not know much about Citizens Community Bancorp's dividend prospects, even though it has been paying dividends for the last eight years and offers a 1.9% yield. A low yield is generally a turn-off, but if the prospects for earnings growth were strong, investors might be pleasantly surprised by the long-term results. The company also returned around 1.5% of its market capitalisation to shareholders in the form of stock buybacks over the past year. That said, the recent jump in the share price will make Citizens Community Bancorp's dividend yield look smaller, even though the company prospects could be improving. There are a few simple ways to reduce the risks of buying Citizens Community Bancorp for its dividend, and we'll go through these below.

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historic-dividend
NasdaqGM:CZWI Historic Dividend January 24th 2021

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. Citizens Community Bancorp paid out 19% of its profit as dividends, over the trailing twelve month period. We'd say its dividends are thoroughly covered by earnings.

Consider getting our latest analysis on Citizens Community Bancorp's financial position here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. The first recorded dividend for Citizens Community Bancorp, in the last decade, was eight years ago. Its dividend has not fluctuated much that time, which we like, but we're conscious that the company might not yet have a track record of maintaining dividends in all economic conditions. During the past eight-year period, the first annual payment was US$0.02 in 2013, compared to US$0.2 last year. This works out to be a compound annual growth rate (CAGR) of approximately 34% a year over that time.

The dividend has been growing pretty quickly, which could be enough to get us interested even though the dividend history is relatively short. Further research may be warranted.

Dividend Growth Potential

While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. It's good to see Citizens Community Bancorp has been growing its earnings per share at 15% a year over the past five years. Rapid earnings growth and a low payout ratio suggests this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.

Conclusion

When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. We're glad to see Citizens Community Bancorp has a low payout ratio, as this suggests earnings are being reinvested in the business. Next, earnings growth has been good, but unfortunately the company has not been paying dividends as long as we'd like. Citizens Community Bancorp has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 3 warning signs for Citizens Community Bancorp (1 shouldn't be ignored!) that you should be aware of before investing.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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What are the risks and opportunities for Citizens Community Bancorp?

Citizens Community Bancorp, Inc. operates as a bank holding company for Citizens Community Federal N.A.

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Rewards

  • Trading at 42% below our estimate of its fair value

Risks

  • Earnings are forecast to decline by an average of 8% per year for the next 3 years

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