Should You Buy First Capital, Inc. (NASDAQ:FCAP) For Its Upcoming Dividend?

First Capital, Inc. (NASDAQ:FCAP) stock is about to trade ex-dividend in 4 days. Investors can purchase shares before the 15th of March in order to be eligible for this dividend, which will be paid on the 30th of March.

First Capital's next dividend payment will be US$0.26 per share. Last year, in total, the company distributed US$0.96 to shareholders. Based on the last year's worth of payments, First Capital has a trailing yield of 1.9% on the current stock price of $54.9. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether First Capital can afford its dividend, and if the dividend could grow.

See our latest analysis for First Capital

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. That's why it's good to see First Capital paying out a modest 32% of its earnings.

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 First Capital paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, First Capital's earnings per share have been growing at 10% a year for the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. First Capital has delivered 3.7% dividend growth per year on average over the past 10 years. Earnings per share have been growing much quicker than dividends, potentially because First Capital is keeping back more of its profits to grow the business.

The Bottom Line

Is First Capital an attractive dividend stock, or better left on the shelf? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. We think this is a pretty attractive combination, and would be interested in investigating First Capital more closely.

Keen to explore more data on First Capital's financial performance? Check out our visualisation of its historical revenue and earnings growth.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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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. 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.
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