Orrstown Financial Services, Inc. (NASDAQ:ORRF) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. This means that investors who purchase Orrstown Financial Services' shares on or after the 30th of July will not receive the dividend, which will be paid on the 9th of August.
The company's next dividend payment will be US$0.19 per share, and in the last 12 months, the company paid a total of US$0.76 per share. Calculating the last year's worth of payments shows that Orrstown Financial Services has a trailing yield of 3.3% on the current share price of $23.18. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Orrstown Financial Services paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Orrstown Financial Services's earnings have been skyrocketing, up 26% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Orrstown Financial Services's dividend payments per share have declined at 1.9% per year on average over the past 10 years, which is uninspiring.
The Bottom Line
Has Orrstown Financial Services got what it takes to maintain its dividend payments? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, Orrstown Financial Services appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
On that note, you'll want to research what risks Orrstown Financial Services is facing. For example, we've found 3 warning signs for Orrstown Financial Services (1 is a bit unpleasant!) that deserve your attention before investing in the shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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