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First Community Corporation (NASDAQ:FCCO) has announced that it will be increasing its dividend on the 15th of February to US$0.13. This takes the annual payment to 2.3% of the current stock price, which is about average for the industry.
First Community's Earnings Easily Cover the Distributions
Solid dividend yields are great, but they only really help us if the payment is sustainable. However, prior to this announcement, First Community's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Over the next year, EPS is forecast to fall by 7.2%. If the dividend continues along recent trends, we estimate the payout ratio could be 28%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
First Community Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from US$0.16 in 2012 to the most recent annual payment of US$0.52. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that First Community has grown earnings per share at 15% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for First Community's prospects of growing its dividend payments in the future.
First Community Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The earnings easily cover the company's distributions, and the company is generating plenty of cash. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for First Community that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.
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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.