Dividend Investors: Don't Be Too Quick To Buy LCNB Corp. (NASDAQ:LCNB) For Its Upcoming Dividend

Readers hoping to buy LCNB Corp. (NASDAQ:LCNB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase LCNB's shares before the 3rd of June in order to be eligible for the dividend, which will be paid on the 17th of June.

The company's next dividend payment will be US$0.22 per share, on the back of last year when the company paid a total of US$0.88 to shareholders. Based on the last year's worth of payments, LCNB stock has a trailing yield of around 6.4% on the current share price of US$13.85. If you buy this business for its dividend, you should have an idea of whether LCNB's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for LCNB

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. Last year, LCNB paid out 99% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

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

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see LCNB's earnings per share have dropped 10% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, LCNB has increased its dividend at approximately 3.2% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. LCNB is already paying out 99% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

Final Takeaway

Has LCNB got what it takes to maintain its dividend payments? Not only are earnings per share shrinking, but LCNB is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.

Although, if you're still interested in LCNB and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 4 warning signs for LCNB and you should be aware of them before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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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.