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 Internet Bancorp (NASDAQ:INBK) has been paying a dividend to shareholders. Today it yields 1.2%. Let’s dig deeper into whether First Internet Bancorp should have a place in your portfolio.
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- 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?
- Does earnings amply cover its dividend payments?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does First Internet Bancorp pass our checks?
First Internet Bancorp has a trailing twelve-month payout ratio of 10%, which means that the dividend is covered by earnings. However, going forward, analysts expect INBK’s payout to fall to 8.9% of its earnings. Assuming a constant share price, this equates to a dividend yield of around 1.2%. However, EPS should increase to $2.43, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Unfortunately, it is really too early to view First Internet Bancorp as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, First Internet Bancorp has a yield of 1.2%, which is on the low-side for Banks stocks.
Now you know to keep in mind the reason why investors should be careful investing in First Internet Bancorp for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. Below, I’ve compiled three fundamental aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for INBK’s future growth? Take a look at our free research report of analyst consensus for INBK’s outlook.
- Valuation: What is INBK 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 INBK 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.
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.