First Savings Financial Group, Inc. (NASDAQ:FSFG) has announced that it will be increasing its dividend on the 30th of June to US$0.36. Despite this raise, the dividend yield of 1.2% is only a modest boost to shareholder returns.
First Savings Financial Group's Dividend Is Well Covered By Earnings
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, First Savings Financial Group's earnings easily covered the dividend, but free cash flows were negative. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
EPS is set to fall by 47.7% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 8.4%, which is comfortable for the company to continue in the future.
First Savings Financial Group Is Still Building Its Track Record
The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2013, the dividend has gone from US$0.40 to US$1.44. This means that it has been growing its distributions at 17% per annum over that time. First Savings Financial Group has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see First Savings Financial Group has been growing its earnings per share at 47% a year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While First Savings Financial Group is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. To that end, First Savings Financial Group has 2 warning signs (and 1 which is a bit unpleasant) we think you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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