Don't Race Out To Buy First Hawaiian, Inc. (NASDAQ:FHB) Just Because It's Going Ex-Dividend

It looks like First Hawaiian, Inc. (NASDAQ:FHB) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase First Hawaiian's shares on or after the 19th of August, you won't be eligible to receive the dividend, when it is paid on the 30th of August.

The company's upcoming dividend is US$0.26 a share, following on from the last 12 months, when the company distributed a total of US$1.04 per share to shareholders. Last year's total dividend payments show that First Hawaiian has a trailing yield of 4.5% on the current share price of US$23.25. 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! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

See our latest analysis for First Hawaiian

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. First Hawaiian paid out more than half (60%) of its earnings last year, which is a regular payout ratio for most companies.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's not ideal to see First Hawaiian's earnings per share have been shrinking at 2.1% a year over the previous five years.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. First Hawaiian has delivered an average of 3.3% per year annual increase in its dividend, based on the past eight years of dividend payments. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.

The Bottom Line

Is First Hawaiian worth buying for its dividend? We're not overly enthused to see First Hawaiian's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. First Hawaiian doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

Although, if you're still interested in First Hawaiian and want to know more, you'll find it very useful to know what risks this stock faces. For example - First Hawaiian has 1 warning sign we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.