Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Lake Shore Bancorp, Inc. (NASDAQ:LSBK) is about to trade ex-dividend in the next day or two. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a 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 Lake Shore Bancorp's shares on or after the 4th of November, you won't be eligible to receive the dividend, when it is paid on the 8th of November.

The company's next dividend payment will be US$0.18 per share, and in the last 12 months, the company paid a total of US$0.72 per share. Based on the last year's worth of payments, Lake Shore Bancorp stock has a trailing yield of around 5.2% on the current share price of US$13.75. 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 Lake Shore Bancorp can afford its dividend, and if the dividend could grow.

See our latest analysis for Lake Shore Bancorp

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Lake Shore Bancorp paid out more than half (72%) of its earnings last year, which is a regular payout ratio for most companies.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see how much of its profit Lake Shore Bancorp 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. This is why it's a relief to see Lake Shore Bancorp earnings per share are up 2.5% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Lake Shore Bancorp has delivered an average of 9.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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.