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 Defiance Financial Corp (NASDAQ:FDEF) has been paying a dividend to shareholders. Today it yields 2.2%. Does First Defiance Financial tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions I ask before picking a dividend stock
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
- Is its annual yield among the top 25% of dividend-paying companies?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has the amount of dividend per share grown over the past?
- Can it afford to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does First Defiance Financial pass our checks?
The company currently pays out 26.9% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a higher payout ratio of 34.9%, leading to a dividend yield of around 2.5%. In addition to this, EPS should increase to $2.27. The higher payout forecasted, along with higher earnings, should lead to greater dividend income for investors moving forward.
When considering the sustainability of dividends, it is also worth checking the cash flow of a company. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. Although FDEF’s per share payments have increased in the past 10 years, it has not been a completely smooth ride. Investors have seen reductions in the dividend per share in the past, although, it has picked up again.
Relative to peers, First Defiance Financial generates a yield of 2.2%, which is on the low-side for Mortgage stocks.
Considering the dividend attributes we analyzed above, First Defiance Financial is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. 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. I’ve put together three key factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for FDEF’s future growth? Take a look at our free research report of analyst consensus for FDEF’s outlook.
- Valuation: What is FDEF 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 FDEF is currently mispriced by the market.
- Other 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 email@example.com.