It looks like Peoples Bancorp of North Carolina, Inc. (NASDAQ:PEBK) is about to go ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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. In other words, investors can purchase Peoples Bancorp of North Carolina's shares before the 3rd of December in order to be eligible for the dividend, which will be paid on the 13th of December.

The company's next dividend payment will be US$0.19 per share. Last year, in total, the company distributed US$0.92 to shareholders. Last year's total dividend payments show that Peoples Bancorp of North Carolina has a trailing yield of 2.9% on the current share price of US$31.44. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Peoples Bancorp of North Carolina has a low and conservative payout ratio of just 25% 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 how much of its profit Peoples Bancorp of North Carolina paid out over the last 12 months.

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Peoples Bancorp of North Carolina earnings per share are up 6.5% per annum over the last five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Peoples Bancorp of North Carolina has delivered an average of 20% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid Peoples Bancorp of North Carolina? 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. We think this is a pretty attractive combination, and would be interested in investigating Peoples Bancorp of North Carolina more closely.

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

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.