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It looks like Mid-Southern Bancorp, Inc. (NASDAQ:MSVB) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 18th of February will not receive this dividend, which will be paid on the 1st of March.
Mid-Southern Bancorp's next dividend payment will be US$0.03 per share, and in the last 12 months, the company paid a total of US$0.08 per share. Looking at the last 12 months of distributions, Mid-Southern Bancorp has a trailing yield of approximately 0.8% on its current stock price of $15.95. 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 check whether the dividend payments are covered, and if earnings are growing.
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. Mid-Southern Bancorp paid out just 22% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
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 strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Mid-Southern Bancorp has grown its earnings rapidly, up 57% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Mid-Southern Bancorp's dividend payments per share have declined at 8.5% per year on average over the past seven years, which is uninspiring. Mid-Southern Bancorp is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
From a dividend perspective, should investors buy or avoid Mid-Southern Bancorp? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, Mid-Southern Bancorp looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
In light of that, while Mid-Southern Bancorp has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 3 warning signs for Mid-Southern Bancorp (1 doesn't sit too well with us!) that you ought to be aware of before buying the shares.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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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