It Might Not Be A Great Idea To Buy Alerus Financial Corporation (NASDAQ:ALRS) For Its Next Dividend
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Alerus Financial Corporation (NASDAQ:ALRS) is about to go ex-dividend in just 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. This means that investors who purchase Alerus Financial's shares on or after the 14th of March will not receive the dividend, which will be paid on the 12th of April.
The company's next dividend payment will be US$0.19 per share. Last year, in total, the company distributed US$0.76 to shareholders. Looking at the last 12 months of distributions, Alerus Financial has a trailing yield of approximately 3.4% on its current stock price of US$22.12. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Alerus Financial has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Alerus Financial
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. Alerus Financial distributed an unsustainably high 128% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Alerus Financial's earnings per share have fallen at approximately 21% a year over the previous 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. Since the start of our data, 10 years ago, Alerus Financial has lifted its dividend by approximately 8.6% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Alerus Financial is already paying out 128% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
From a dividend perspective, should investors buy or avoid Alerus Financial? Earnings per share are in decline and Alerus Financial is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. Alerus Financial doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Alerus Financial. For example - Alerus Financial has 2 warning signs we think you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
