VersaBank (TSE:VB) stock is about to trade ex-dividend in 4 days. If you purchase the stock on or after the 1st of October, you won't be eligible to receive this dividend, when it is paid on the 31st of October.
VersaBank's next dividend payment will be CA$0.025 per share. Last year, in total, the company distributed CA$0.10 to shareholders. Based on the last year's worth of payments, VersaBank has a trailing yield of 1.4% on the current stock price of CA$6.94. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's 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. VersaBank has a low and conservative payout ratio of just 8.3% of its income after tax.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. 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 36% dividend growth per year on average over the past three years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Is VersaBank an attractive dividend stock, or better left on the shelf? 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.
Keen to explore more data on VersaBank's financial performance? Check out our visualisation of its historical revenue and earnings growth.
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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