Yahoo Finance Dividend Investors: Don't Be Too Quick To Buy First National Financial Corporation (TSE:FN) For Its Upcoming Dividend
First National Financial Corporation (TSE:FN) is about to trade ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, First National Financial investors that purchase the stock on or after the 30th of May will not receive the dividend, which will be paid on the 15th of June.
The company's next dividend payment will be CA$0.20 per share. Last year, in total, the company distributed CA$2.40 to shareholders. Last year's total dividend payments show that First National Financial has a trailing yield of 6.0% on the current share price of CA$40.18. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
View our latest analysis for First National Financial
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. Its dividend payout ratio is 81% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be concerned if earnings began to decline.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
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 earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see First National Financial's earnings per share have been shrinking at 3.0% 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. In the last 10 years, First National Financial has lifted its dividend by approximately 6.7% a year on average. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. First National Financial is already paying out 81% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
Is First National Financial an attractive dividend stock, or better left on the shelf? Earnings per share have been declining and the company is paying out more than half its profits to shareholders; not an enticing combination. This is not an overtly appealing combination of characteristics, and we're just not that interested in this company's dividend.
Although, if you're still interested in First National Financial and want to know more, you'll find it very useful to know what risks this stock faces. Our analysis shows 1 warning sign for First National Financial and you should be aware of this before buying any shares.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
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