It looks like Orrstown Financial Services, Inc. (NASDAQ:ORRF) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 30th of October, you won't be eligible to receive this dividend, when it is paid on the 9th of November.
Orrstown Financial Services's next dividend payment will be US$0.17 per share. Last year, in total, the company distributed US$0.68 to shareholders. Based on the last year's worth of payments, Orrstown Financial Services has a trailing yield of 4.9% on the current stock price of $13.98. If you buy this business for its dividend, you should have an idea of whether Orrstown Financial Services's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see Orrstown Financial Services paying out a modest 35% of its earnings.
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 falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Orrstown Financial Services's 12% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Orrstown Financial Services has seen its dividend decline 2.5% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
Is Orrstown Financial Services an attractive dividend stock, or better left on the shelf? Orrstown Financial Services's earnings per share are down over the past five years, although it has the cushion of a low payout ratio, which would suggest a cut to the dividend is relatively unlikely. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.
So if you want to do more digging on Orrstown Financial Services, you'll find it worthwhile knowing the risks that this stock faces. We've identified 2 warning signs with Orrstown Financial Services (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.
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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