First Guaranty Bancshares, Inc. (NASDAQ:FGBI) has announced that on 31st of December, it will be paying a dividend of$0.01, which a reduction from last year’s comparable dividend. This means that the annual payment will be 2.7% of the current stock price, which is in line with the average for the industry.
View our latest analysis for First Guaranty Bancshares
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.
First Guaranty Bancshares has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Taking data from its last earnings report, calculating for the company’s payout ratio shows 66%, which means that First Guaranty Bancshares would be able to pay its last dividend without pressure on the balance sheet.
Looking forward, earnings per share is forecast by analysts to rise exponentially over the next 3 years. Additionally, they estimate future payout ratio will be 3.0% over the same time horizon, which makes us pretty comfortable with the sustainability of the dividend.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The annual payment during the last 10 years was $0.437 in 2014, and the most recent fiscal year payment was $0.32. This works out to be a decline of approximately 3.1% per year over that time. A company that decreases its dividend over time generally isn’t what we are looking for.
With a relatively unstable dividend, it’s even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. In the last five years, First Guaranty Bancshares’ earnings per share has shrunk at approximately 7.1% per annum. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends. It’s not all bad news though, as the earnings are predicted to rise over the next 12 months – we would just be a bit cautious until this can turn into a longer term trend.
In summary, dividends being cut isn’t ideal, however it can bring the payment into a more sustainable range. The company hasn’t been paying a very consistent dividend over time, despite only paying out a small portion of earnings. Overall, we don’t think this company has the makings of a good income stock.
