Guaranty Federal Bancshares, Inc. (NASDAQ:GFED) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 4th of January in order to be eligible for this dividend, which will be paid on the 15th of January.
Guaranty Federal Bancshares's next dividend payment will be US$0.15 per share, and in the last 12 months, the company paid a total of US$0.60 per share. Looking at the last 12 months of distributions, Guaranty Federal Bancshares has a trailing yield of approximately 3.2% on its current stock price of $19. 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! We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Guaranty Federal Bancshares
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 Guaranty Federal Bancshares's payout ratio is modest, at just 32% of profit.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Click here to see how much of its profit Guaranty Federal Bancshares paid out over the last 12 months.
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. 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 encouraged by the steady growth at Guaranty Federal Bancshares, with earnings per share up 6.9% on average over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past seven years, Guaranty Federal Bancshares has increased its dividend at approximately 17% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
Should investors buy Guaranty Federal Bancshares for the upcoming dividend? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. In summary, Guaranty Federal Bancshares appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.