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Should You Buy First Defiance Financial Corp. (NASDAQ:FDEF) For Its Upcoming Dividend In 4 Days?

Simply Wall St

First Defiance Financial Corp. (NASDAQ:FDEF) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 15th of August to receive the dividend, which will be paid on the 23rd of August.

First Defiance Financial's next dividend payment will be US$0.19 per share. Last year, in total, the company distributed US$0.76 to shareholders. Based on the last year's worth of payments, First Defiance Financial has a trailing yield of 2.7% on the current stock price of $27.64. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether First Defiance Financial has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for First Defiance Financial

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see First Defiance Financial paying out a modest 31% of its earnings.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:FDEF Historical Dividend Yield, August 10th 2019

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, First Defiance Financial's earnings per share have been growing at 15% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. First Defiance Financial has delivered an average of 3.9% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.

The Bottom Line

From a dividend perspective, should investors buy or avoid First Defiance Financial? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. In summary, First Defiance Financial appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

Wondering what the future holds for First Defiance Financial? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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 editorial-team@simplywallst.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.