Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that First BanCorp. (NYSE:FBP) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 28th of August will not receive the dividend, which will be paid on the 13th of September.
First BanCorp's next dividend payment will be US$0.03 per share, on the back of last year when the company paid a total of US$0.12 to shareholders. Last year's total dividend payments show that First BanCorp has a trailing yield of 1.2% on the current share price of $9.66. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. First BanCorp paid out just 8.9% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by First BanCorp's 13% 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. First BanCorp has seen its dividend decline 30% per annum on average over the past 10 years, which is not great to see. While it's not great that earnings and dividends per share have fallen in recent years, we're encouraged by the fact that management has trimmed the dividend rather than risk over-committing the company in a risky attempt to maintain yields to shareholders.
To Sum It Up
Is First BanCorp an attractive dividend stock, or better left on the shelf? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. We're unconvinced on the company's merits, and think there might be better opportunities out there.
Ever wonder what the future holds for First BanCorp? See what the five analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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