Why It Might Not Make Sense To Buy William Penn Bancorporation (NASDAQ:WMPN) For Its Upcoming Dividend
William Penn Bancorporation (NASDAQ:WMPN) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Therefore, if you purchase William Penn Bancorporation's shares on or after the 26th of January, you won't be eligible to receive the dividend, when it is paid on the 8th of February.
The company's next dividend payment will be US$0.03 per share, on the back of last year when the company paid a total of US$0.12 to shareholders. Last year's total dividend payments show that William Penn Bancorporation has a trailing yield of 1.0% on the current share price of $12.22. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for William Penn Bancorporation
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. William Penn Bancorporation paid out 145% of profit in the past year, which we think is typically not sustainable unless there are mitigating characteristics such as unusually strong cash flow or a large cash balance.
Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.
Click here to see how much of its profit William Penn Bancorporation paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by William Penn Bancorporation's 5.5% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. William Penn Bancorporation has delivered an average of 6.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. William Penn Bancorporation is already paying out 145% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
To Sum It Up
Has William Penn Bancorporation got what it takes to maintain its dividend payments? Earnings per share are in decline and William Penn Bancorporation is paying out what we feel is an uncomfortably high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.
Although, if you're still interested in William Penn Bancorporation and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 2 warning signs for William Penn Bancorporation that we strongly recommend you have a look at before investing in the company.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
