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Is Bank of Commerce Holdings (NASDAQ:BOCH) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.
A slim 1.9% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Bank of Commerce Holdings could have potential. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. So we need to form a view on if a company's dividend is sustainable, relative to its net profit after tax. Bank of Commerce Holdings paid out 18% of its profit as dividends, over the trailing twelve month period. We like this low payout ratio, because it implies the dividend is well covered and leaves ample opportunity for reinvestment.
We update our data on Bank of Commerce Holdings every 24 hours, so you can always get our latest analysis of its financial health, here.
Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. Bank of Commerce Holdings has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been cut by more than 20% on at least one occasion historically. During the past ten-year period, the first annual payment was US$0.32 in 2009, compared to US$0.20 last year. This works out to be a decline of approximately 4.6% per year over that time. Bank of Commerce Holdings's dividend hasn't shrunk linearly at 4.6% per annum, but the CAGR is a useful estimate of the historical rate of change.
When a company's per-share dividend falls we question if this reflects poorly on either the business or management. Either way, we find it hard to get excited about a company with a declining dividend.
Dividend Growth Potential
With a relatively unstable dividend, it's even more important to evaluate if earnings per share (EPS) are growing - it's not worth taking the risk on a dividend getting cut, unless you might be rewarded with larger dividends in future. It's good to see Bank of Commerce Holdings has been growing its earnings per share at 12% a year over the past 5 years. Earnings per share are growing at a solid clip, and the payout ratio is low. We think this is an ideal combination in a dividend stock.
Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're glad to see Bank of Commerce Holdings has a low payout ratio, as this suggests earnings are being reinvested in the business. We were also glad to see it growing earnings, but it was concerning to see the dividend has been cut at least once in the past. Bank of Commerce Holdings has a credible record on several fronts, but falls slightly short of our standards for a dividend stock.
See if management have their own wealth at stake, by checking insider shareholdings in Bank of Commerce Holdings stock.
Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Thank you for reading.