TowneBank (NASDAQ:TOWN) Looks Interesting, And It's About To Pay A Dividend

It looks like TowneBank (NASDAQ:TOWN) is about to go ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. Thus, you can purchase TowneBank's shares before the 30th of September in order to receive the dividend, which the company will pay on the 11th of October.

The company's next dividend payment will be US$0.25 per share. Last year, in total, the company distributed US$1.00 to shareholders. Based on the last year's worth of payments, TowneBank has a trailing yield of 3.0% on the current stock price of US$32.97. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for TowneBank

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. TowneBank paid out a comfortable 49% of its profit last year.

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?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're not enthused to see that TowneBank's earnings per share have remained effectively flat over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. TowneBank has delivered an average of 9.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.

Final Takeaway

Should investors buy TowneBank for the upcoming dividend? Earnings per share have been flat in recent years, although TowneBank reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. TowneBank ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

On that note, you'll want to research what risks TowneBank is facing. In terms of investment risks, we've identified 1 warning sign with TowneBank and understanding them should be part of your investment process.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.