Could Community Bankers Trust Corporation (NASDAQ:ESXB) 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. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.
A slim 1.5% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, Community Bankers Trust could have potential. There are a few simple ways to reduce the risks of buying Community Bankers Trust 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. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. In the last year, Community Bankers Trust paid out 9.3% of its profit as dividends. With a low payout ratio, it looks like the dividend is comprehensively covered by earnings.
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. Community Bankers Trust 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$0.16 in 2009, compared to US$0.12 last year. The dividend has shrunk at around 2.8% a year during that period. Community Bankers Trust's dividend hasn't shrunk linearly at 2.8% per annum, but the CAGR is a useful estimate of the historical rate of change.
We struggle to make a case for buying Community Bankers Trust for its dividend, given that payments have shrunk over the past ten years.
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. Strong earnings per share (EPS) growth might encourage our interest in the company despite fluctuating dividends, which is why it's great to see Community Bankers Trust has grown its earnings per share at 24% per annum over the past five years. The company is only paying out a fraction of its earnings as dividends, and in the past been able to use the retained earnings to grow its profits rapidly - an ideal combination.
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. We're glad to see Community Bankers Trust has a low payout ratio, as this suggests earnings are being reinvested in the business. Unfortunately, the company has not been able to generate earnings per share growth, and cut its dividend at least once in the past. Overall we think Community Bankers Trust is an interesting dividend stock, although it could be better.
Earnings growth generally bodes well for the future value of company dividend payments. See if the 4 Community Bankers Trust analysts we track are forecasting continued growth with our free report on analyst estimates for the company.
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 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. Thank you for reading.