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Here's Why We're Wary Of Buying First Hawaiian's (NASDAQ:FHB) For Its Upcoming Dividend

Simply Wall St
·3 min read

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see First Hawaiian, Inc. (NASDAQ:FHB) is about to trade ex-dividend in the next 4 days. If you purchase the stock on or after the 20th of November, you won't be eligible to receive this dividend, when it is paid on the 4th of December.

First Hawaiian's next dividend payment will be US$0.26 per share, and in the last 12 months, the company paid a total of US$1.04 per share. Based on the last year's worth of payments, First Hawaiian stock has a trailing yield of around 4.9% on the current share price of $21.27. 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.

View our latest analysis for First Hawaiian

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. First Hawaiian is paying out an acceptable 70% of its profit, a common payout level among most companies.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's not encouraging to see that First Hawaiian's earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, four years ago, First Hawaiian has lifted its dividend by approximately 6.8% a year on average.

Final Takeaway

Has First Hawaiian got what it takes to maintain its dividend payments? First Hawaiian's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. First Hawaiian doesn't appear to have a lot going for it, and we're not inclined to take a risk on owning it for the dividend.

So if you're still interested in First Hawaiian despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 2 warning signs for First Hawaiian that you should be aware of before investing in their shares.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.