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It looks like Guaranty Federal Bancshares, Inc. (NASDAQ:GFED) is about to go ex-dividend in the next three 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Guaranty Federal Bancshares' shares before the 2nd of July in order to receive the dividend, which the company will pay on the 16th of July.
The company's next dividend payment will be US$0.15 per share, and in the last 12 months, the company paid a total of US$0.60 per share. Based on the last year's worth of payments, Guaranty Federal Bancshares stock has a trailing yield of around 2.4% on the current share price of $24.83. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. That's why it's good to see Guaranty Federal Bancshares paying out a modest 37% of its earnings.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Guaranty Federal Bancshares, with earnings per share up 3.9% on average over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Guaranty Federal Bancshares has delivered 17% dividend growth per year on average over the past seven years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Is Guaranty Federal Bancshares an attractive dividend stock, or better left on the shelf? Guaranty Federal Bancshares has seen its earnings per share grow slowly in recent years, and the company reinvests more than half of its profits in the business, which generally bodes well for its future prospects. Guaranty Federal 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.
While it's tempting to invest in Guaranty Federal Bancshares for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 2 warning signs for Guaranty Federal Bancshares (1 shouldn't be ignored) you should be aware of.
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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