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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 four days. This means that investors who purchase shares on or after the 9th of November will not receive the dividend, which will be paid on the 1st of December.
Enterprise Bancorp's upcoming dividend is US$0.17 a share, following on from the last 12 months, when the company distributed a total of US$0.70 per share to shareholders. Based on the last year's worth of payments, Enterprise Bancorp stock has a trailing yield of around 3.0% on the current share price of $23.58. 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 investigate whether Enterprise Bancorp can afford its dividend, and if the dividend could grow.
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. Fortunately Enterprise Bancorp's payout ratio is modest, at just 27% of profit.
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.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Enterprise Bancorp's earnings per share have risen 12% 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 last 10 years, Enterprise Bancorp has lifted its dividend by approximately 5.8% 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.
To Sum It Up
Is Enterprise 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. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. 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.
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.
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