Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see MetroCity Bankshares, Inc. (NASDAQ:MCBS) is about to trade ex-dividend in the next four days. This means that investors who purchase shares on or after the 30th of July will not receive the dividend, which will be paid on the 7th of August.
MetroCity Bankshares's upcoming dividend is US$0.09 a share, following on from the last 12 months, when the company distributed a total of US$0.44 per share to shareholders. Based on the last year's worth of payments, MetroCity Bankshares stock has a trailing yield of around 3.3% on the current share price of $13.5. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. 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. MetroCity Bankshares paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 MetroCity Bankshares's earnings have been skyrocketing, up 26% 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. MetroCity Bankshares has delivered 38% dividend growth per year on average over the past four years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
From a dividend perspective, should investors buy or avoid MetroCity Bankshares? Companies like MetroCity Bankshares 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. In summary, MetroCity Bankshares appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
On that note, you'll want to research what risks MetroCity Bankshares is facing. For example, we've found 5 warning signs for MetroCity Bankshares (1 doesn't sit too well with us!) that deserve your attention before investing in the shares.
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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