Oak Valley Bancorp (NASDAQ:OVLY) stock is about to trade ex-dividend in four days. Ex-dividend means that investors that purchase the stock on or after the 31st of July will not receive this dividend, which will be paid on the 14th of August.
Oak Valley Bancorp's upcoming dividend is US$0.14 a share, following on from the last 12 months, when the company distributed a total of US$0.28 per share to shareholders. Based on the last year's worth of payments, Oak Valley Bancorp stock has a trailing yield of around 2.3% on the current share price of $12.35. 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.
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. Oak Valley Bancorp is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Oak Valley Bancorp, with earnings per share up 9.9% on average over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past seven years, Oak Valley Bancorp has increased its dividend at approximately 16% 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.
To Sum It Up
From a dividend perspective, should investors buy or avoid Oak Valley Bancorp? Oak Valley Bancorp 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. Overall, Oak Valley Bancorp 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 Oak Valley Bancorp is facing. For example, we've found 1 warning sign for Oak Valley Bancorp that we recommend you consider before investing in the business.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.