Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see OFG Bancorp (NYSE:OFG) is about to trade ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. 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. In other words, investors can purchase OFG Bancorp's shares before the 29th of September in order to be eligible for the dividend, which will be paid on the 17th of October.

The company's upcoming dividend is US$0.20 a share, following on from the last 12 months, when the company distributed a total of US$0.80 per share to shareholders. Calculating the last year's worth of payments shows that OFG Bancorp has a trailing yield of 3.1% on the current share price of $26.13. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for OFG Bancorp

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. OFG Bancorp has a low and conservative payout ratio of just 17% of its income after tax.

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?

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. That's why it's comforting to see OFG Bancorp's earnings have been skyrocketing, up 26% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. OFG Bancorp has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

From a dividend perspective, should investors buy or avoid OFG Bancorp? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating OFG Bancorp more closely.

While it's tempting to invest in OFG Bancorp for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 2 warning signs for OFG Bancorp and you should be aware of these before buying any shares.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.