It looks like Eagle Bancorp Montana, Inc. (NASDAQ:EBMT) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 13th of August to receive the dividend, which will be paid on the 4th of September.
Eagle Bancorp Montana's next dividend payment will be US$0.098 per share, on the back of last year when the company paid a total of US$0.39 to shareholders. Last year's total dividend payments show that Eagle Bancorp Montana has a trailing yield of 2.3% on the current share price of $16.73. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Eagle Bancorp Montana has a low and conservative payout ratio of just 16% of its income after tax. Eagle Bancorp Montana paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
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. That's why it's comforting to see Eagle Bancorp Montana's earnings have been skyrocketing, up 29% per annum for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Eagle Bancorp Montana has seen its dividend decline 9.3% per annum on average over the past 10 years, which is not great to see. Eagle Bancorp Montana is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Is Eagle Bancorp Montana an attractive dividend stock, or better left on the shelf? Companies like Eagle Bancorp Montana that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Overall, Eagle Bancorp Montana looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
On that note, you'll want to research what risks Eagle Bancorp Montana is facing. Our analysis shows 4 warning signs for Eagle Bancorp Montana that we strongly recommend you have a look at before investing in the company.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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