Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Enterprise Bancorp, Inc. (NASDAQ:EBTC) is about to go ex-dividend in just 4 days. Ex-dividend means that investors that purchase the stock on or after the 12th of August will not receive this dividend, which will be paid on the 3rd of September.
Enterprise Bancorp's next dividend payment will be US$0.16 per share. Last year, in total, the company distributed US$0.64 to shareholders. Calculating the last year's worth of payments shows that Enterprise Bancorp has a trailing yield of 2.3% on the current share price of $27.69. If you buy this business for its dividend, you should have an idea of whether Enterprise Bancorp'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. Enterprise Bancorp paid out just 23% 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?
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. For this reason, we're glad to see Enterprise Bancorp's earnings per share have risen 14% per annum over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Enterprise Bancorp has increased its dividend at approximately 5.9% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Enterprise Bancorp is keeping back more of its profits to grow the business.
Is Enterprise Bancorp worth buying for its dividend? 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, Enterprise Bancorp looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
Curious about whether Enterprise Bancorp has been able to consistently generate growth? Here's a chart of its historical revenue and earnings growth.
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.
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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. Thank you for reading.