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Here's What We Like About Severn Bancorp's (NASDAQ:SVBI) Upcoming Dividend

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Simply Wall St
·3 min read
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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Severn Bancorp, Inc. (NASDAQ:SVBI) is about to trade ex-dividend in the next three days. This means that investors who purchase shares on or after the 7th of December will not receive the dividend, which will be paid on the 15th of December.

Severn Bancorp's upcoming dividend is US$0.04 a share, following on from the last 12 months, when the company distributed a total of US$0.16 per share to shareholders. Based on the last year's worth of payments, Severn Bancorp stock has a trailing yield of around 2.3% on the current share price of $6.9. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.

View our latest analysis for Severn Bancorp

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Severn Bancorp's payout ratio is modest, at just 38% of profit.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see how much of its profit Severn Bancorp paid out over the last 12 months.

historic-dividend
historic-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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Severn Bancorp's earnings have been skyrocketing, up 50% per annum for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Severn Bancorp has delivered 10% dividend growth per year on average over the past three years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Has Severn Bancorp got what it takes to maintain its dividend payments? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, Severn Bancorp appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

In light of that, while Severn Bancorp has an appealing dividend, it's worth knowing the risks involved with this stock. Every company has risks, and we've spotted 3 warning signs for Severn Bancorp you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.