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Orrstown Financial Services, Inc. (NASDAQ:ORRF) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 31st of January will not receive the dividend, which will be paid on the 10th of February.
Orrstown Financial Services's next dividend payment will be US$0.17 per share, and in the last 12 months, the company paid a total of US$0.68 per share. Last year's total dividend payments show that Orrstown Financial Services has a trailing yield of 3.1% on the current share price of $21.79. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
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. Orrstown Financial Services paid out a comfortable 37% of its profit last year.
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 shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Orrstown Financial Services's earnings per share have fallen at approximately 15% 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. Orrstown Financial Services's dividend payments per share have declined at 2.5% per year on average over the past ten years, which is uninspiring. It's never nice to see earnings and dividends falling, but at least management has cut the dividend rather than potentially risk the company's health in an attempt to maintain it.
Is Orrstown Financial Services an attractive dividend stock, or better left on the shelf? Orrstown Financial Services's earnings per share are down over the past five years, although it has the cushion of a low payout ratio, which would suggest a cut to the dividend is relatively unlikely. We think there are likely better opportunities out there.
Wondering what the future holds for Orrstown Financial Services? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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