First National Financial's (TSE:FN) Dividend Will Be CA$0.20

First National Financial Corporation (TSE:FN) will pay a dividend of CA$0.20 on the 16th of January. The dividend yield will be 6.8% based on this payment which is still above the industry average.

See our latest analysis for First National Financial

First National Financial's Dividend Forecasted To Be Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable.

First National Financial has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but First National Financial's payout ratio of 73% is a good sign as this means that earnings decently cover dividends.

EPS is forecast to rise by 12.1% over the next 3 years. The future payout ratio over that same time horizon is estimated by analysts to be 79% which is a bit high but can definitely be sustainable.

First National Financial Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from CA$1.25 total annually to CA$2.40. This works out to be a compound annual growth rate (CAGR) of approximately 6.7% a year over that time. The dividend has been growing very nicely for a number of years, and has given its shareholders some nice income in their portfolios.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. In the last five years, First National Financial's earnings per share has shrunk at approximately 3.4% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On First National Financial's Dividend

Overall, a consistent dividend is a good thing, and we think that First National Financial has the ability to continue this into the future. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Given that earnings are not growing, the dividend does not look nearly so attractive. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 4 analysts we track are forecasting for the future. Is First National Financial not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.