Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Oak Valley Bancorp (NASDAQ:OVLY) is about to trade ex-dividend in the next 2 days. If you purchase the stock on or after the 31st of January, you won't be eligible to receive this dividend, when it is paid on the 14th of February.
Oak Valley Bancorp's next dividend payment will be US$0.14 per share. Last year, in total, the company distributed US$0.28 to shareholders. Looking at the last 12 months of distributions, Oak Valley Bancorp has a trailing yield of approximately 1.5% on its current stock price of $18.82. 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 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. Oak Valley Bancorp is paying out just 18% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
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. If earnings fall far enough, the company could be forced to cut its dividend. For this reason, we're glad to see Oak Valley Bancorp's earnings per share have risen 11% 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 ten years, Oak Valley Bancorp has increased its dividend at approximately 11% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Is Oak Valley 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. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating Oak Valley Bancorp more closely.
Want to learn more about Oak Valley Bancorp? 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 email@example.com. 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.
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