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Is It Smart To Buy Oak Valley Bancorp (NASDAQ:OVLY) Before It Goes Ex-Dividend?

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Simply Wall St
·3 min read
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Readers hoping to buy Oak Valley Bancorp (NASDAQ:OVLY) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 29th of January in order to receive the dividend, which the company will pay on the 12th of February.

Oak Valley Bancorp's next dividend payment will be US$0.14 per share, and in the last 12 months, the company paid a total of US$0.29 per share. Last year's total dividend payments show that Oak Valley Bancorp has a trailing yield of 1.8% on the current share price of $16.15. 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 Oak Valley Bancorp can afford its dividend, and if the dividend could grow.

View our latest analysis for Oak Valley Bancorp

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. Oak Valley Bancorp is paying out just 17% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.

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.

Click here to see how much of its profit Oak Valley Bancorp paid out over the last 12 months.

historic-dividend
historic-dividend

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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Oak Valley Bancorp's earnings have been skyrocketing, up 22% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past seven years, Oak Valley Bancorp has increased its dividend at approximately 16% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Is Oak Valley 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. Overall, Oak Valley Bancorp looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 1 warning sign for Oak Valley Bancorp that we recommend you consider before investing in the business.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.