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 Plumas Bancorp (NASDAQ:PLBC) is about to go ex-dividend in just 4 days. You can purchase shares before the 31st of October in order to receive the dividend, which the company will pay on the 15th of November.
Plumas Bancorp's next dividend payment will be US$0.2 per share, on the back of last year when the company paid a total of US$0.5 to shareholders. Last year's total dividend payments show that Plumas Bancorp has a trailing yield of 2.1% on the current share price of $21.7. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Plumas Bancorp can afford its dividend, and if the dividend could grow.
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. Plumas Bancorp is paying out just 14% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
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?
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Plumas Bancorp's earnings have been skyrocketing, up 31% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past three years, Plumas Bancorp has increased its dividend at approximately 32% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Is Plumas Bancorp an attractive dividend stock, or better left on the shelf? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. In summary, Plumas Bancorp appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
Want to learn more about Plumas Bancorp? Here's a visualisation of its historical rate of revenue and earnings growth.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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 firstname.lastname@example.org. 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.