Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see First Commonwealth Financial Corporation (NYSE:FCF) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 7th of May will not receive the dividend, which will be paid on the 22nd of May.
First Commonwealth Financial’s next dividend payment will be US$0.11 per share, and in the last 12 months, the company paid a total of US$0.44 per share. Calculating the last year’s worth of payments shows that First Commonwealth Financial has a trailing yield of 5.0% on the current share price of $8.8. 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 First Commonwealth Financial can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. First Commonwealth Financial paid out a comfortable 48% of its profit last year.
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.
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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, First Commonwealth Financial’s earnings per share have been growing at 13% a year for the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the past ten years, First Commonwealth Financial has increased its dividend at approximately 14% a year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is First Commonwealth Financial worth buying for its dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. Perhaps even more importantly – this can sometimes signal management is focused on the long term future of the business. Overall, First Commonwealth Financial looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
While it’s tempting to invest in First Commonwealth Financial for the dividends alone, you should always be mindful of the risks involved. For example – First Commonwealth Financial has 2 warning signs we think you should be aware of.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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