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Why It Might Not Make Sense To Buy Codorus Valley Bancorp, Inc. (NASDAQ:CVLY) For Its Upcoming Dividend

Simply Wall St
·3-min read

Codorus Valley Bancorp, Inc. (NASDAQ:CVLY) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 26th of October in order to be eligible for this dividend, which will be paid on the 10th of November.

Codorus Valley Bancorp'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 Codorus Valley Bancorp has a trailing yield of 3.8% on the current share price of $13.58. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Codorus Valley Bancorp can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Codorus Valley Bancorp

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Codorus Valley Bancorp is paying out an acceptable 63% of its profit, a common payout level among most companies.

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.

Click here to see how much of its profit Codorus Valley Bancorp paid out over the last 12 months.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. Codorus Valley Bancorp's earnings per share have fallen at approximately 9.2% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Codorus Valley Bancorp has lifted its dividend by approximately 20% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

Final Takeaway

From a dividend perspective, should investors buy or avoid Codorus Valley Bancorp? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

With that in mind though, if the poor dividend characteristics of Codorus Valley Bancorp don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 2 warning signs for Codorus Valley Bancorp and you should be aware of these before buying any shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.