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Glen Burnie Bancorp (NASDAQ:GLBZ) stock is about to trade ex-dividend in 3 days time. Ex-dividend means that investors that purchase the stock on or after the 19th of July will not receive this dividend, which will be paid on the 2nd of August.
Glen Burnie Bancorp's next dividend payment will be US$0.10 per share, and in the last 12 months, the company paid a total of US$0.40 per share. Looking at the last 12 months of distributions, Glen Burnie Bancorp has a trailing yield of approximately 3.8% on its current stock price of $10.44. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Glen Burnie Bancorp has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. It paid out 77% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. It could become a concern if earnings started to decline.
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?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Glen Burnie Bancorp's 11% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Glen Burnie Bancorp has seen its dividend decline 1.2% per annum on average over the past 10 years, which is not great to see.
To Sum It Up
From a dividend perspective, should investors buy or avoid Glen Burnie Bancorp? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. Glen Burnie Bancorp doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.
Want to learn more about Glen Burnie 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.
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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. Thank you for reading.