Should Income Investors Look At Community West Bancshares (NASDAQ:CWBC) Before Its Ex-Dividend?

It looks like Community West Bancshares (NASDAQ:CWBC) is about to go ex-dividend in the next 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 as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Community West Bancshares' shares on or after the 2nd of May will not receive the dividend, which will be paid on the 17th of May.

The company's next dividend payment will be US$0.12 per share, on the back of last year when the company paid a total of US$0.48 to shareholders. Calculating the last year's worth of payments shows that Community West Bancshares has a trailing yield of 2.7% on the current share price of US$17.83. If you buy this business for its dividend, you should have an idea of whether Community West Bancshares's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Community West Bancshares

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fortunately Community West Bancshares's payout ratio is modest, at just 25% of profit.

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 the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Community West Bancshares's earnings per share have fallen at approximately 5.4% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Community West Bancshares has delivered 9.1% dividend growth per year on average over the past 10 years.

Final Takeaway

Should investors buy Community West Bancshares for the upcoming dividend? Community West Bancshares's earnings per share are down over the past five years, although it has the cushion of a low payout ratio, which would suggest a cut to the dividend is relatively unlikely. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.

However if you're still interested in Community West Bancshares as a potential investment, you should definitely consider some of the risks involved with Community West Bancshares. Our analysis shows 2 warning signs for Community West Bancshares that we strongly recommend you have a look at before investing in the company.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

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

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.