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 Commonwealth Financial Corporation (NYSE:FCF) has been paying a dividend to shareholders. Today it yields 2.2%. Should it have a place in your portfolio? Let’s take a look at First Commonwealth Financial in more detail.
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it the top 25% annual dividend yield payer?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Will it have the ability to keep paying its dividends going forward?
Does First Commonwealth Financial pass our checks?
First Commonwealth Financial has a trailing twelve-month payout ratio of 41%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect FCF’s payout to fall to 33% of its earnings, which leads to a dividend yield of around 2.4%. However, EPS should increase to $1.13, 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. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Not only have dividend payouts from First Commonwealth Financial fallen over the past 10 years, it has also been highly volatile during this time, with drops of over 25% in some years. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, First Commonwealth Financial generates a yield of 2.2%, which is on the low-side for Banks stocks.
If you are building an income portfolio, then First Commonwealth Financial is a complicated choice since it has some positive aspects as well as negative ones. 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 urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three relevant aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for FCF’s future growth? Take a look at our free research report of analyst consensus for FCF’s outlook.
- Valuation: What is FCF 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 FCF 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.