Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see First Financial Corporation (NASDAQ:THFF) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. Meaning, you will need to purchase First Financial's shares before the 16th of June to receive the dividend, which will be paid on the 1st of July.
The company's next dividend payment will be US$0.53 per share. Last year, in total, the company distributed US$1.06 to shareholders. Last year's total dividend payments show that First Financial has a trailing yield of 2.4% on the current share price of $44.54. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. First Financial paid out a comfortable 26% 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see First Financial's earnings per share have risen 11% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, First Financial has increased its dividend at approximately 1.4% a year on average. Earnings per share have been growing much quicker than dividends, potentially because First Financial is keeping back more of its profits to grow the business.
The Bottom Line
Is First Financial worth buying for its dividend? Companies like First Financial that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. Overall, First Financial looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
On that note, you'll want to research what risks First Financial is facing. To help with this, we've discovered 1 warning sign for First Financial that you should be aware of before investing in their shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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