It looks like Orrstown Financial Services, Inc. (NASDAQ:ORRF) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 31st of July, you won't be eligible to receive this dividend, when it is paid on the 10th of August.
Orrstown Financial Services's upcoming dividend is US$0.17 a share, following on from the last 12 months, when the company distributed a total of US$0.68 per share to shareholders. Based on the last year's worth of payments, Orrstown Financial Services stock has a trailing yield of around 4.9% on the current share price of $13.92. If you buy this business for its dividend, you should have an idea of whether Orrstown Financial Services's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are 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. That's why it's good to see Orrstown Financial Services paying out a modest 31% 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?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. Readers will understand then, why we're concerned to see Orrstown Financial Services's earnings per share have dropped 11% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Orrstown Financial Services's dividend payments per share have declined at 2.5% per year on average over the past 10 years, which is uninspiring. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
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. It doesn't appear an outstanding opportunity, but could be worth a closer look.
If you're not too concerned about Orrstown Financial Services's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. Every company has risks, and we've spotted 2 warning signs for Orrstown Financial Services (of which 1 makes us a bit uncomfortable!) you should know about.
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.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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