Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Norwood Financial Corp. (NASDAQ:NWFL) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 11th of October in order to be eligible for this dividend, which will be paid on the 1st of November.
Norwood Financial's upcoming dividend is US$0.2 a share, following on from the last 12 months, when the company distributed a total of US$1.0 per share to shareholders. Last year's total dividend payments show that Norwood Financial has a trailing yield of 3.1% on the current share price of $31.24. 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.
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. That's why it's good to see Norwood Financial paying out a modest 43% of its earnings.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Norwood Financial earnings per share are up 7.1% per annum over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Norwood Financial has delivered 4.7% dividend growth per year on average over the past ten years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Has Norwood Financial got what it takes to maintain its dividend payments? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. In summary, Norwood Financial appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
Want to learn more about Norwood Financial? Here's a visualisation of its historical rate of 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.
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If you spot an error that warrants correction, please contact the editor at email@example.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.