Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. Historically, FS Bancorp Inc (NASDAQ:FSBW) has been paying a dividend to shareholders. Today it yields 1.2%. Does FS Bancorp tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it paying an annual yield above 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has it increased its dividend per share amount over the past?
- Does earnings amply cover its dividend payments?
- Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
Does FS Bancorp pass our checks?
The current trailing twelve-month payout ratio for the stock is 11%, meaning the dividend is sufficiently covered by earnings. Going forward, analysts expect FSBW’s payout to remain around the same level at 11% of its earnings, which leads to a dividend yield of 1.2%. Moreover, EPS should increase to $5.14.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
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. Unfortunately, it is really too early to view FS Bancorp as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, FS Bancorp has a yield of 1.2%, which is on the low-side for Mortgage stocks.
Now you know to keep in mind the reason why investors should be careful investing in FS Bancorp for the dividend. On the other hand, if you are not strictly just a dividend investor, the stock could still be offering some interesting investment opportunities. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three important aspects you should further research:
- Future Outlook: What are well-informed industry analysts predicting for FSBW’s future growth? Take a look at our free research report of analyst consensus for FSBW’s outlook.
- Valuation: What is FSBW 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 FSBW 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.