It looks like Oconee Federal Financial Corp. (NASDAQ:OFED) is about to go ex-dividend in the next four days. This means that investors who purchase shares on or after the 5th of August will not receive the dividend, which will be paid on the 20th of August.
Oconee Federal Financial’s next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Looking at the last 12 months of distributions, Oconee Federal Financial has a trailing yield of approximately 1.5% on its current stock price of $26.51. 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 investigate whether Oconee Federal Financial can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Oconee Federal Financial paid out 57% of its earnings to investors last year, a normal payout level for most businesses.
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 that aren’t growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. It’s not encouraging to see that Oconee Federal Financial’s earnings are effectively flat over the past five years. It’s better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Oconee Federal Financial’s dividend payments are broadly unchanged compared to where they were nine years ago.
The Bottom Line
Has Oconee Federal Financial got what it takes to maintain its dividend payments? Oconee Federal Financial has been struggling to generate growth while also paying out more than half of its earnings to shareholders as dividends. In sum this is a middling combination, and we find it hard to get excited about the company from a dividend perspective.
With that being said, if dividends aren’t your biggest concern with Oconee Federal Financial, you should know about the other risks facing this business. For example, Oconee Federal Financial has 2 warning signs (and 1 which makes us a bit uncomfortable) we think you should know about.
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.
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