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Dividend paying stocks like AmeriServ Financial, Inc. (NASDAQ:ASRV) tend to be popular with investors, and for good reason - some research suggests a significant amount of all stock market returns come from reinvested dividends. Unfortunately, it's common for investors to be enticed in by the seemingly attractive yield, and lose money when the company has to cut its dividend payments.
Investors might not know much about AmeriServ Financial's dividend prospects, even though it has been paying dividends for the last seven years and offers a 2.4% yield. A 2.4% yield is not inspiring, but the longer payment history has some appeal. The company also bought back stock equivalent to around 3.8% of market capitalisation this year. Some simple analysis can reduce the risk of holding AmeriServ Financial for its dividend, and we'll focus on the most important aspects below.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. In the last year, AmeriServ Financial paid out 22% of its profit as dividends. We'd say its dividends are thoroughly covered by earnings.
Remember, you can always get a snapshot of AmeriServ Financial's latest financial position, by checking our visualisation of its financial health.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. Looking at the data, we can see that AmeriServ Financial has been paying a dividend for the past seven years. The company has been paying a stable dividend for a while now, which is great. However we'd prefer to see consistency for a few more years before giving it our full seal of approval. During the past seven-year period, the first annual payment was US$0.04 in 2012, compared to US$0.10 last year. Dividends per share have grown at approximately 14% per year over this time.
We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
Dividend Growth Potential
While dividend payments have been relatively reliable, it would also be nice if earnings per share (EPS) were growing, as this is essential to maintaining the dividend's purchasing power over the long term. AmeriServ Financial has grown its earnings per share at 9.6% per annum over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for AmeriServ Financial's prospects of growing its dividend payments in the future.
When we look at a dividend stock, we need to form a judgement on whether the dividend will grow, if the company is able to maintain it in a wide range of economic circumstances, and if the dividend payout is sustainable. Firstly, we like that AmeriServ Financial has a low and conservative payout ratio. We were also glad to see it growing earnings, although its dividend history is not as long as we'd like. AmeriServ Financial has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.
Now, if you want to look closer, it would be worth checking out our free research on AmeriServ Financial management tenure, salary, and performance.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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