Oak Valley Bancorp (NASDAQ:OVLY) Is Increasing Its Dividend To US$0.15
Oak Valley Bancorp (NASDAQ:OVLY) will increase its dividend on the 11th of February to US$0.15. Despite this raise, the dividend yield of 1.6% is only a modest boost to shareholder returns.
View our latest analysis for Oak Valley Bancorp
Oak Valley Bancorp's Payment Has Solid Earnings Coverage
If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Oak Valley Bancorp's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share could rise by 16.0% over the next year if the trend from the last few years continues. If the dividend continues on this path, the payout ratio could be 13% by next year, which we think can be pretty sustainable going forward.
Oak Valley Bancorp Is Still Building Its Track Record
It is great to see that Oak Valley Bancorp has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from US$0.10 in 2014 to the most recent annual payment of US$0.30. This means that it has been growing its distributions at 15% per annum over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Oak Valley Bancorp has grown earnings per share at 16% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Oak Valley Bancorp Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that Oak Valley Bancorp is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Oak Valley Bancorp that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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