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It Might Not Be A Great Idea To Buy Lake Shore Bancorp, Inc. (NASDAQ:LSBK) For Its Next Dividend

Simply Wall St

Lake Shore Bancorp, Inc. (NASDAQ:LSBK) stock is about to trade ex-dividend in 4 days time. This means that investors who purchase shares on or after the 2nd of August will not receive the dividend, which will be paid on the 16th of August.

Lake Shore Bancorp's upcoming dividend is US$0.12 a share, following on from the last 12 months, when the company distributed a total of US$0.48 per share to shareholders. Calculating the last year's worth of payments shows that Lake Shore Bancorp has a trailing yield of 3.3% on the current share price of $14.75. 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! As a result, readers should always check whether Lake Shore Bancorp has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Lake Shore Bancorp

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. Lake Shore Bancorp paid out 74% of its earnings to investors last year, a normal payout level for most businesses.

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.

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

NasdaqGM:LSBK Historical Dividend Yield, July 28th 2019

Have Earnings And Dividends Been Growing?

Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Lake Shore Bancorp's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Lake Shore Bancorp has increased its dividend at approximately 9.1% a year on average.

Final Takeaway

Is Lake Shore Bancorp an attractive dividend stock, or better left on the shelf? Lake Shore Bancorp's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

Keen to explore more data on Lake Shore Bancorp's financial performance? Check out our visualisation of its historical revenue and earnings growth.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.