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 VersaBank (TSE:VB) is about to go ex-dividend in just 4 days. Investors can purchase shares before the 2nd of April in order to be eligible for this dividend, which will be paid on the 30th of April.
VersaBank's next dividend payment will be CA$0.025 per share, on the back of last year when the company paid a total of CA$0.10 to shareholders. Looking at the last 12 months of distributions, VersaBank has a trailing yield of approximately 1.9% on its current stock price of CA$5.27. If you buy this business for its dividend, you should have an idea of whether VersaBank's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. VersaBank is paying out just 9.3% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
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. It's encouraging to see VersaBank has grown its earnings rapidly, up 24% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. VersaBank has delivered an average of 58% per year annual increase in its dividend, based on the past two years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Has VersaBank got what it takes to maintain its dividend payments? Companies like VersaBank that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. VersaBank 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.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Our analysis shows 3 warning signs for VersaBank that we strongly recommend you have a look at before investing in the company.
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.
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