The board of First National Corporation (NASDAQ:FXNC) has announced that it will pay a dividend of $0.155 per share on the 14th of March. The dividend yield is 2.4% based on this payment, which is a little bit low compared to the other companies in the industry.
View our latest analysis for First National
Even a low dividend yield can be attractive if it is sustained for years on end.
First National has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but First National’s payout ratio of 60% is a good sign as this means that earnings decently cover dividends.
Looking forward, EPS is forecast to rise by 163.4% over the next 3 years. The future payout ratio could be 26% over that time period, according to analyst estimates, which is a good look for the future of the dividend.
The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.10 in 2015, and the most recent fiscal year payment was $0.62. This means that it has been growing its distributions at 20% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The company’s investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren’t as good as they seem. Over the past five years, it looks as though First National’s EPS has declined at around 17% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. 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 becomes a long term trend.
An additional note is that the company has been raising capital by issuing stock equal to 43% of shares outstanding in the last 12 months. 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. While the payments look sustainable for now, earnings have been shrinking so the dividend could come under pressure in the future. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.
