Old Second Bancorp, Inc. (NASDAQ:OSBC) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, Old Second Bancorp investors that purchase the stock on or after the 28th of October will not receive the dividend, which will be paid on the 8th of November.
The company's next dividend payment will be US$0.05 per share, and in the last 12 months, the company paid a total of US$0.20 per share. Last year's total dividend payments show that Old Second Bancorp has a trailing yield of 1.5% on the current share price of $13.74. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is 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. Old Second Bancorp is paying out just 9.4% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events.
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. That's why it's comforting to see Old Second Bancorp's earnings have been skyrocketing, up 23% per annum 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. Since the start of our data, six years ago, Old Second Bancorp has lifted its dividend by approximately 31% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
Is Old Second Bancorp an attractive dividend stock, or better left on the shelf? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. Old Second Bancorp 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.
While it's tempting to invest in Old Second Bancorp for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Old Second Bancorp you should be aware of.
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. 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.
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