Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Business First Bancshares, Inc. (NASDAQ:BFST) is about to go ex-dividend in just 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Business First Bancshares' shares before the 14th of August in order to receive the dividend, which the company will pay on the 31st of August.
The company's next dividend payment will be US$0.12 per share, and in the last 12 months, the company paid a total of US$0.48 per share. Based on the last year's worth of payments, Business First Bancshares has a trailing yield of 2.3% on the current stock price of $20.63. 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 typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Business First Bancshares has a low and conservative payout ratio of just 19% of its income after tax.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Business First Bancshares has grown its earnings rapidly, up 31% a year for the past five years.
We'd also point out that Business First Bancshares issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last five years, Business First Bancshares has lifted its dividend by approximately 8.4% 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.
Should investors buy Business First Bancshares for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. 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.
In light of that, while Business First Bancshares has an appealing dividend, it's worth knowing the risks involved with this stock. For example, Business First Bancshares has 3 warning signs (and 1 which is concerning) we think you should know about.
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.