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American River Bankshares (NASDAQ:AMRB) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 3rd of November will not receive the dividend, which will be paid on the 18th of November.
American River Bankshares's next dividend payment will be US$0.07 per share. Last year, in total, the company distributed US$0.28 to shareholders. Based on the last year's worth of payments, American River Bankshares stock has a trailing yield of around 2.7% on the current share price of $10.37. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately American River Bankshares's payout ratio is modest, at just 25% of profit.
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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, American River Bankshares's earnings per share have been growing at 15% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past four years, American River Bankshares has increased its dividend at approximately 8.8% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has American River Bankshares got what it takes to maintain its dividend payments? Companies like American River Bankshares 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 American River Bankshares more closely.
While it's tempting to invest in American River Bankshares for the dividends alone, you should always be mindful of the risks involved. For example, we've found 3 warning signs for American River Bankshares (1 doesn't sit too well with us!) that deserve your attention before investing in the shares.
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.
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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