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The board of FirstCash Holdings, Inc (NASDAQ:FCFS) has announced that it will pay a dividend on the 31st of May, with investors receiving US$0.30 per share. Including this payment, the dividend yield on the stock will be 1.7%, which is a modest boost for shareholders' returns.
FirstCash Holdings' Earnings Easily Cover the Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. Prior to this announcement, FirstCash Holdings' dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
The next year is set to see EPS grow by 58.0%. If the dividend continues on this path, the payout ratio could be 35% by next year, which we think can be pretty sustainable going forward.
FirstCash Holdings Is Still Building Its Track Record
It is great to see that FirstCash Holdings has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2016, the dividend has gone from US$0.50 to US$1.20. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
The Dividend's Growth Prospects Are Limited
The company's investors will be pleased to have been receiving dividend income for some time. However, FirstCash Holdings has only grown its earnings per share at 4.8% per annum over the past five years. FirstCash Holdings is struggling to find viable investments, so it is returning more to shareholders. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
We'd also point out that FirstCash Holdings has issued stock equal to 16% of shares outstanding. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for FirstCash Holdings that investors should know about before committing capital to this stock. Is FirstCash Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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