First Interstate BancSystem, Inc.’s (NASDAQ:FIBK) investors are due to receive a payment of $0.47 per share on 21st of August. This means the annual payment is 6.6% of the current stock price, which is above the average for the industry.
A big dividend yield for a few years doesn’t mean much if it can’t be sustained.
Having distributed dividends for at least 10 years, First Interstate BancSystem has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but First Interstate BancSystem’s payout ratio of 84% is a good sign as this means that earnings decently cover dividends.
The next 3 years are set to see EPS grow by 32.1%. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 69% over the same time period, which would make us comfortable with the sustainability of the dividend.
Check out our latest analysis for First Interstate BancSystem
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the dividend has gone from $0.64 total annually to $1.88. This works out to be a compound annual growth rate (CAGR) of approximately 11% a year over that time. It is good to see that there has been strong dividend growth, and that there haven’t been any cuts for a long time.
Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. First Interstate BancSystem has seen earnings per share falling at 3.3% per year over the last five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits. 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, while it’s good to see that the dividend hasn’t been cut, we are a bit cautious about First Interstate BancSystem’s payments, as there could be some issues with sustaining them into the future. We can’t deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don’t think this company has the makings of a good income stock.
