Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Level One Bancorp, Inc. (NASDAQ:LEVL) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 30th of December in order to receive the dividend, which the company will pay on the 15th of January.
Level One Bancorp's next dividend payment will be US$0.05 per share, and in the last 12 months, the company paid a total of US$0.20 per share. Last year's total dividend payments show that Level One Bancorp has a trailing yield of 1.0% on the current share price of $19.84. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. Level One Bancorp paid out just 8.8% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Level One Bancorp paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.
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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Level One Bancorp has grown its earnings rapidly, up 50% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Level One Bancorp has delivered an average of 19% per year annual increase in its dividend, based on the past three years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Is Level One Bancorp an attractive dividend stock, or better left on the shelf? Companies like Level One Bancorp that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Level One Bancorp 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.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 1 warning sign for Level One Bancorp you should be aware of.
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.
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