Bank of the James Financial Group, Inc. (NASDAQ:BOTJ) stock is about to trade ex-dividend in 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 of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Bank of the James Financial Group's shares on or after the 22nd of November, you won't be eligible to receive the dividend, when it is paid on the 6th of December.

The company's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.40 to shareholders. Looking at the last 12 months of distributions, Bank of the James Financial Group has a trailing yield of approximately 2.7% on its current stock price of US$14.58. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Bank of the James Financial Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Bank of the James Financial Group

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Bank of the James Financial Group has a low and conservative payout ratio of just 22% of its income after tax.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see how much of its profit Bank of the James Financial Group paid out over the last 12 months.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Bank of the James Financial Group's earnings per share have been growing at 11% a year for the past five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Bank of the James Financial Group has delivered 8.2% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

From a dividend perspective, should investors buy or avoid Bank of the James Financial Group? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. In summary, Bank of the James Financial Group appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

While it's tempting to invest in Bank of the James Financial Group for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 1 warning sign for Bank of the James Financial Group that you should be aware of before investing in their 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.