Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, Orrstown Financial Services, Inc. (NASDAQ:ORRF) has been paying a dividend to shareholders. Today it yields 3.0%. Let’s dig deeper into whether Orrstown Financial Services should have a place in your portfolio.
How I analyze a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it be able to continue to payout at the current rate in the future?
Does Orrstown Financial Services pass our checks?
Orrstown Financial Services has a trailing twelve-month payout ratio of 33%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect ORRF’s payout to fall to 26% of its earnings. Assuming a constant share price, this equates to a dividend yield of 3.0%. Moreover, EPS is also forecasted to fall to $1.52 in the upcoming year. The lower EPS on top of a lower payout ratio will lead to a fall in dividend payment moving forward.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality facing ORRF investors is that whilst it has continued to pay shareholders dividend, dividends are lower today, than they were a decade ago. Though this may not be a serious red flag, strong dividend stocks should always strive to increase its payout over time.
Relative to peers, Orrstown Financial Services generates a yield of 3.0%, which is high for Banks stocks but still below the market’s top dividend payers.
Considering the dividend attributes we analyzed above, Orrstown Financial Services is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three key aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for ORRF’s future growth? Take a look at our free research report of analyst consensus for ORRF’s outlook.
- Valuation: What is ORRF worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether ORRF is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.