First Guaranty Bancshares (NASDAQ:FGBI) Is Reducing Its Dividend To $0.01

First Guaranty Bancshares, Inc. (NASDAQ:FGBI) is reducing its dividend from last year's comparable payment to $0.01 on the 31st of December. Despite the cut, the dividend yield of 2.7% will still be comparable to other companies in the industry.

View our latest analysis for First Guaranty Bancshares

First Guaranty Bancshares' Earnings Will Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue.

First Guaranty Bancshares has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but First Guaranty Bancshares' payout ratio of 66% is a good sign as this means that earnings decently cover dividends.

Analysts expect a massive rise in earnings per share in the next 3 years. Additionally, they estimate future payout ratio will be 3.0% over the same time horizon, which makes us pretty comfortable with the sustainability of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of $0.437 in 2014 to the most recent total annual payment of $0.32. Doing the maths, this is a decline of about 3.1% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

Dividend Growth Is Doubtful

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. In the last five years, First Guaranty Bancshares' earnings per share has shrunk at approximately 7.1% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. Earnings are predicted to grow over the next year, but we would remain cautious until a track record of earnings growth is established.

In Summary

In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. While First Guaranty Bancshares is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We don't think First Guaranty Bancshares is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for First Guaranty Bancshares that you should be aware of before investing. Is First Guaranty Bancshares not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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