Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see ChoiceOne Financial Services, Inc. (NASDAQ:COFS) is about to trade ex-dividend in the next 4 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase ChoiceOne Financial Services' shares before the 15th of December in order to be eligible for the dividend, which will be paid on the 31st of December.

The company's upcoming dividend is US$0.29 a share, following on from the last 12 months, when the company distributed a total of US$1.12 per share to shareholders. Calculating the last year's worth of payments shows that ChoiceOne Financial Services has a trailing yield of 3.7% on the current share price of US$31.50. If you buy this business for its dividend, you should have an idea of whether ChoiceOne Financial Services's dividend is reliable and sustainable. So we need to investigate whether ChoiceOne Financial Services can afford its dividend, and if the dividend could grow.

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. ChoiceOne Financial Services paid out 65% of its earnings to investors last year, a normal payout level for most businesses.

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. So we're not too excited that ChoiceOne Financial Services's earnings are down 2.0% a year over the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. ChoiceOne Financial Services has delivered an average of 7.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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 ChoiceOne Financial Services? We're not overly enthused to see ChoiceOne Financial Services's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. ChoiceOne Financial Services doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

With that in mind though, if the poor dividend characteristics of ChoiceOne Financial Services don't faze you, it's worth being mindful of the risks involved with this business. Be aware that ChoiceOne Financial Services is showing 3 warning signs in our investment analysis, and 1 of those doesn't sit too well with us...

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.

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.