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Business First Bancshares, Inc. (NASDAQ:BFST) stock is about to trade ex-dividend in four days. Investors can purchase shares before the 11th of February in order to be eligible for this dividend, which will be paid on the 28th of February.
Business First Bancshares's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Based on the last year's worth of payments, Business First Bancshares has a trailing yield of 1.9% on the current stock price of $21.53. 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! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Business First Bancshares paid out just 24% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Business First Bancshares has grown its earnings rapidly, up 22% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Business First Bancshares has delivered 7.7% dividend growth per year on average over the past three years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Business First Bancshares for the upcoming dividend? Companies like Business First Bancshares 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. Business First Bancshares 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 Business First Bancshares is facing. For example, we've found 3 warning signs for Business First Bancshares (1 is potentially serious!) 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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