Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see FNCB Bancorp, Inc. (NASDAQ:FNCB) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 28th of February will not receive the dividend, which will be paid on the 16th of March.
FNCB Bancorp's next dividend payment will be US$0.055 per share. Last year, in total, the company distributed US$0.20 to shareholders. Last year's total dividend payments show that FNCB Bancorp has a trailing yield of 2.6% on the current share price of $7.59. 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 investigate whether FNCB 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. Fortunately FNCB Bancorp's payout ratio is modest, at just 36% of profit.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by FNCB Bancorp's 7.2% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
We'd also point out that FNCB Bancorp issued a meaningful number of new shares in the past year. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. FNCB Bancorp's dividend payments per share have declined at 7.6% 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.
To Sum It Up
Should investors buy FNCB Bancorp for the upcoming dividend? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. It doesn't appear an outstanding opportunity, but could be worth a closer look.
Want to learn more about FNCB Bancorp's dividend performance? Check out this visualisation of its historical 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.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.