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A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Historically, First Defiance Financial Corp. (NASDAQ:FDEF) has paid a dividend to shareholders. It currently yields 2.6%. Does First Defiance Financial tick all the boxes of a great dividend stock? Below, I'll take you through my analysis.
5 checks you should use to assess a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share amount increased over the past?
- Is is able to pay the current rate of dividends from its earnings?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How does First Defiance Financial fare?
The current trailing twelve-month payout ratio for the stock is 28%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect FDEF's payout to increase to 35% of its earnings. Assuming a constant share price, this equates to a dividend yield of 2.7%. In addition to this, EPS should increase to $2.3. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
If there is one thing that you want to be reliable in your life, it's dividend stocks and their constant income stream. Although FDEF's per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Relative to peers, First Defiance Financial has a yield of 2.6%, which is on the low-side for Mortgage stocks.
Taking into account the dividend metrics, First Defiance Financial ticks most of the boxes as a strong dividend investment, putting it in my list of top dividend payers. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I've compiled three key factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for FDEF’s future growth? Take a look at our free research report of analyst consensus for FDEF’s outlook.
- Valuation: What is FDEF worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether FDEF is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.