Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see First Community Corporation (NASDAQ:FCCO) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 30th of January will not receive this dividend, which will be paid on the 14th of February.
First Community’s next dividend payment will be US$0.12 per share. Last year, in total, the company distributed US$0.44 to shareholders. Based on the last year’s worth of payments, First Community has a trailing yield of 2.3% on the current stock price of $20.62. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. First Community paid out a comfortable 30% of its profit last year.
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.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, First Community’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. First Community has delivered an average of 4.1% per year annual increase in its dividend, based on the past ten years of dividend payments. It’s good to see both earnings and the dividend have improved – although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
To Sum It Up
Is First Community worth buying for its dividend? 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. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, First Community appears to have some promise as a dividend stock, and we’d suggest taking a closer look at it.
Wondering what the future holds for First Community? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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 firstname.lastname@example.org. 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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