Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, First Bancorp (NASDAQ:FBNC) has been paying a dividend to shareholders. Today it yields 1.0%. Should it have a place in your portfolio? Let’s take a look at First Bancorp in more detail.
5 questions to ask before buying a dividend stock
If you are a dividend investor, you should always assess these five key metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has the amount of dividend per share grown over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will it have the ability to keep paying its dividends going forward?
How well does First Bancorp fit our criteria?
The current trailing twelve-month payout ratio for the stock is 14%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect FBNC’s payout to remain around the same level at 15% of its earnings, which leads to a dividend yield of 1.1%. In addition to this, EPS should increase to $2.97.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Not only have dividend payouts from First Bancorp fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. This means that dividend hunters should probably steer clear of the stock, at least for now until the track record improves.
In terms of its peers, First Bancorp produces a yield of 1.0%, which is on the low-side for Banks stocks.
After digging a little deeper into First Bancorp’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three relevant factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for FBNC’s future growth? Take a look at our free research report of analyst consensus for FBNC’s outlook.
- Valuation: What is FBNC 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 FBNC is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.