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 one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Meaning, you will need to purchase First Financial's shares before the 28th of March to receive the dividend, which will be paid on the 15th of April.
The company's next dividend payment will be US$0.45 per share, on the back of last year when the company paid a total of US$0.90 to shareholders. Calculating the last year's worth of payments shows that First Financial has a trailing yield of 2.4% on the current share price of US$37.03. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. First Financial paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see First Financial earnings per share are up 6.2% 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. First Financial has seen its dividend decline 0.6% per annum on average over the past 10 years, which is not great to see.
To Sum It Up
Has First Financial got what it takes to maintain its dividend payments? It has been growing its earnings per share somewhat in recent years, although it reinvests more than half its earnings in the business, which could suggest there are some growth projects that have not yet reached fruition. First Financial ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
On that note, you'll want to research what risks First Financial is facing. To that end, you should learn about the 2 warning signs we've spotted with First Financial (including 1 which is significant).
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.