The board of First Bancorp (NASDAQ:FBNC) has announced that the dividend on 25th of July will be increased to $0.23, which will be 4.5% higher than last year’s payment of $0.22 which covered the same period. Even though the dividend went up, the yield is still quite low at only 2.2%.
If it is predictable over a long period, even low dividend yields can be attractive.
Having distributed dividends for at least 10 years, First Bancorp has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company’s payout ratio shows 42%, which means that First Bancorp would be able to pay its last dividend without pressure on the balance sheet.
Over the next year, EPS is forecast to expand by 29.0%. If the dividend continues along recent trends, we estimate the future payout ratio will be 37%, which is in the range that makes us comfortable with the sustainability of the dividend.
Check out our latest analysis for First Bancorp
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.32 in 2015, and the most recent fiscal year payment was $0.88. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.
The company’s investors will be pleased to have been receiving dividend income for some time. Let’s not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though First Bancorp’s EPS has declined at around 6.7% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In summary, it’s great to see that the company can raise the dividend and keep it in a sustainable range. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. The payment isn’t stellar, but it could make a decent addition to a dividend portfolio.
