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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Simmons First National Corporation (NASDAQ:SFNC) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 13th of March will not receive the dividend, which will be paid on the 6th of April.
Simmons First National's next dividend payment will be US$0.17 per share. Last year, in total, the company distributed US$0.68 to shareholders. Calculating the last year's worth of payments shows that Simmons First National has a trailing yield of 3.3% on the current share price of $20.4. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Simmons First National paid out a comfortable 26% of its profit last year.
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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Simmons First National's earnings per share have been growing at 18% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Simmons First National has delivered an average of 6.0% per year annual increase in its dividend, based on the past ten years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
The Bottom Line
Has Simmons First National got what it takes to maintain its dividend payments? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. Overall, Simmons First National looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
On that note, you'll want to research what risks Simmons First National is facing. Every company has risks, and we've spotted 2 warning signs for Simmons First National you should know about.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.