Don't Buy First Guaranty Bancshares, Inc. (NASDAQ:FGBI) For Its Next Dividend Without Doing These Checks
Readers hoping to buy First Guaranty Bancshares, Inc. (NASDAQ:FGBI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase First Guaranty Bancshares' shares before the 21st of March in order to be eligible for the dividend, which will be paid on the 29th of March.
The company's next dividend payment will be US$0.16 per share, on the back of last year when the company paid a total of US$0.64 to shareholders. Looking at the last 12 months of distributions, First Guaranty Bancshares has a trailing yield of approximately 5.9% on its current stock price of US$10.76. If you buy this business for its dividend, you should have an idea of whether First Guaranty Bancshares's dividend is reliable and sustainable. So we need to investigate whether First Guaranty Bancshares can afford its dividend, and if the dividend could grow.
View our latest analysis for First Guaranty Bancshares
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. Last year First Guaranty Bancshares paid out 104% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings.
When a company pays out a dividend that is not well covered by profits, the dividend is generally seen as more vulnerable to being cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're discomforted by First Guaranty Bancshares's 16% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
We'd also point out that First Guaranty Bancshares issued a meaningful number of new shares in the past year. It's hard to grow dividends per share when a company keeps creating new shares.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, First Guaranty Bancshares has increased its dividend at approximately 3.9% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. First Guaranty Bancshares is already paying out 104% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
Has First Guaranty Bancshares got what it takes to maintain its dividend payments? Not only are earnings per share shrinking, but First Guaranty Bancshares is paying out a disconcertingly high percentage of its profit as dividends. Generally we think dividend investors should avoid businesses in this situation, as high payout ratios and declining earnings can lead to the dividend being cut. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
With that in mind though, if the poor dividend characteristics of First Guaranty Bancshares don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 3 warning signs for First Guaranty Bancshares you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
