Provident Bancorp, Inc. (NASDAQ:PVBC) Passed Our Checks, And It's About To Pay A US$0.03 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Provident Bancorp, Inc. (NASDAQ:PVBC) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 10th of February will not receive the dividend, which will be paid on the 26th of February.

Provident Bancorp's upcoming dividend is US$0.03 a share, following on from the last 12 months, when the company distributed a total of US$0.12 per share to shareholders. Based on the last year's worth of payments, Provident Bancorp stock has a trailing yield of around 1.0% on the current share price of $12.12. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Provident Bancorp

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Provident Bancorp has a low and conservative payout ratio of just 14% of its income after tax.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Provident Bancorp's earnings per share have risen 11% per annum over the last five years.

Provident Bancorp also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.

Unfortunately Provident Bancorp has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.

Final Takeaway

Has Provident Bancorp got what it takes to maintain its dividend payments? Companies like Provident Bancorp that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating Provident Bancorp more closely.

So while Provident Bancorp looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for Provident Bancorp you should know about.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. 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.
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