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 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. In other words, investors can purchase First Financial’s shares before the 1st of April in order to be eligible for the dividend, which will be paid on the 15th of April.
The company’s next dividend payment will be US$0.51 per share. Last year, in total, the company distributed US$2.04 to shareholders. Calculating the last year’s worth of payments shows that First Financial has a trailing yield of 4.1% on the current share price of US$49.95. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. First Financial paid out a comfortable 46% of its profit last year.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Check out our latest analysis for First Financial
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Companies that aren’t growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It’s not encouraging to see that First Financial’s earnings are effectively flat over the past five years. It’s better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. First Financial has delivered an average of 7.6% per year annual increase in its dividend, based on the past 10 years of dividend payments.
