Don't Buy LCNB Corp. (NASDAQ:LCNB) For Its Next Dividend Without Doing These Checks

LCNB Corp. (NASDAQ:LCNB) is about to trade ex-dividend in the next three days. 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase LCNB's shares on or after the 2nd of December will not receive the dividend, which will be paid on the 16th of December.

The company's next dividend payment will be US$0.22 per share, and in the last 12 months, the company paid a total of US$0.88 per share. Calculating the last year's worth of payments shows that LCNB has a trailing yield of 5.1% on the current share price of US$17.38. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether LCNB has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for LCNB

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. LCNB distributed an unsustainably high 168% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.

Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. LCNB's earnings per share have fallen at approximately 17% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, LCNB has lifted its dividend by 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 168% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

The Bottom Line

Has LCNB got what it takes to maintain its dividend payments? Earnings per share are in decline and LCNB is paying out what we feel is an uncomfortably 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. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its 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. For example - LCNB has 4 warning signs we think you should be aware of.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.