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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 Colony Bankcorp, Inc. (NASDAQ:CBAN) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 6th of August will not receive the dividend, which will be paid on the 21st of August.
Colony Bankcorp’s upcoming dividend is US$0.10 a share, following on from the last 12 months, when the company distributed a total of US$0.40 per share to shareholders. Calculating the last year’s worth of payments shows that Colony Bankcorp has a trailing yield of 3.7% on the current share price of $10.67. 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 from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Colony Bankcorp’s payout ratio is modest, at just 37% of profit. Colony Bankcorp paid a dividend despite reporting negative free cash flow last year. That’s typically a bad combination and – if this were more than a one-off – not sustainable.
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?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we’re glad to see Colony Bankcorp’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 last three years, Colony Bankcorp has lifted its dividend by approximately 59% a year on average. It’s exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
Has Colony Bankcorp got what it takes to maintain its dividend payments? When companies are growing rapidly and retaining a majority of the profits within the business, it’s usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating Colony Bankcorp more closely.
In light of that, while Colony Bankcorp has an appealing dividend, it’s worth knowing the risks involved with this stock. For example, we’ve found 2 warning signs for Colony Bankcorp that we recommend you consider before investing in the business.
If you’re in the market for dividend stocks, we recommend checking our list of top 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.