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Orrstown Financial Services, Inc. (NASDAQ:ORRF) is about to trade ex-dividend in the next four days. You will need to purchase shares before the 29th of January to receive the dividend, which will be paid on the 8th of February.
Orrstown Financial Services's next dividend payment will be US$0.18 per share, and in the last 12 months, the company paid a total of US$0.72 per share. Calculating the last year's worth of payments shows that Orrstown Financial Services has a trailing yield of 3.9% on the current share price of $18.61. 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 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. Fortunately Orrstown Financial Services's payout ratio is modest, at just 28% of profit.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see Orrstown Financial Services has grown its earnings rapidly, up 20% a year 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. Orrstown Financial Services's dividend payments per share have declined at 2.0% per year on average over the past 10 years, which is uninspiring.
To Sum It Up
Should investors buy Orrstown Financial Services for the upcoming dividend? Companies like Orrstown Financial Services that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. Orrstown Financial Services ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 3 warning signs for Orrstown Financial Services (of which 1 is concerning!) you should know about.
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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