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Readers hoping to buy BankFinancial Corporation (NASDAQ:BFIN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 11th of February will not receive this dividend, which will be paid on the 28th of February.
BankFinancial's upcoming dividend is US$0.10 a share, following on from the last 12 months, when the company distributed a total of US$0.40 per share to shareholders. Based on the last year's worth of payments, BankFinancial stock has a trailing yield of around 3.3% on the current share price of $12.27. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's 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 BankFinancial's payout ratio is modest, at just 41% of profit.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see BankFinancial's earnings have been skyrocketing, up 43% per annum 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. Since the start of our data, ten years ago, BankFinancial has lifted its dividend by approximately 3.6% a year on average. Earnings per share have been growing much quicker than dividends, potentially because BankFinancial is keeping back more of its profits to grow the business.
To Sum It Up
Should investors buy BankFinancial for the upcoming dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. BankFinancial 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.
Want to learn more about BankFinancial? Here's a visualisation of its historical rate of revenue and earnings growth.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.