Could Citizens & Northern Corporation (NASDAQ:CZNC) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. 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 high yield and a long history of paying dividends is an appealing combination for Citizens & Northern. We'd guess that plenty of investors have purchased it for the income. There are a few simple ways to reduce the risks of buying Citizens & Northern for its dividend, and we'll go through these 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. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. In the last year, Citizens & Northern paid out 68% of its profit as dividends. A payout ratio above 50% generally implies a business is reaching maturity, although it is still possible to reinvest in the business or increase the dividend over time.
We update our data on Citizens & Northern 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. For the purpose of this article, we only scrutinise the last decade of Citizens & Northern's dividend payments. Its dividend payments have fallen by 20% or more on at least one occasion over the past ten years. During the past ten-year period, the first annual payment was US$0.96 in 2009, compared to US$1.08 last year. Dividends per share have grown at approximately 1.2% per year over this time. Citizens & Northern's dividend payments have fluctuated, so it hasn't grown 1.2% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.
We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments, we don't think this is an attractive combination.
Dividend Growth Potential
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Citizens & Northern's EPS are effectively flat over the past five years. Over the long term, steady earnings per share is a risk as the value of the dividends can be reduced by inflation. Growth of 1.0% is relatively anaemic growth, which we wonder about. If the company is struggling to grow, perhaps that's why it elects to pay out more than half of its earnings to shareholders.
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. First, we think Citizens & Northern has an acceptable payout ratio. Unfortunately, the company has not been able to generate earnings per share growth, and cut its dividend at least once in the past. Citizens & Northern might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.
Are management backing themselves to deliver performance? Check their shareholdings in Citizens & Northern in our latest insider ownership analysis.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
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