First Financial (NASDAQ:THFF) Is Increasing Its Dividend To $0.51

The board of First Financial Corporation (NASDAQ:THFF) has announced that the dividend on 15th of January will be increased to $0.51, which will be 13% higher than last year's payment of $0.45 which covered the same period. The payment will take the dividend yield to 3.8%, which is in line with the average for the industry.

View our latest analysis for First Financial

First Financial's Dividend Forecasted To Be Well Covered By Earnings

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

First Financial 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 Financial's payout ratio of 49% is a good sign as this means that earnings decently cover dividends.

Over the next 3 years, EPS is forecast to expand by 66.2%. Analysts forecast the future payout ratio could be 36% over the same time horizon, which is a number we think the company can maintain.

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 $0.96 in 2014 to the most recent total annual payment of $1.80. This means that it has been growing its distributions at 6.5% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. However, First Financial's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 0.2% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 1 warning sign for First Financial that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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