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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see First Internet Bancorp (NASDAQ:INBK) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 30th of March will not receive the dividend, which will be paid on the 15th of April.
First Internet Bancorp's next dividend payment will be US$0.06 per share. Last year, in total, the company distributed US$0.24 to shareholders. Based on the last year's worth of payments, First Internet Bancorp stock has a trailing yield of around 1.7% on the current share price of $14.18. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. First Internet Bancorp is paying out just 9.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. First Internet Bancorp paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see First Internet Bancorp's earnings have been skyrocketing, up 21% per annum 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. In the past seven years, First Internet Bancorp has increased its dividend at approximately 6.0% a year on average. 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.
To Sum It Up
Is First Internet Bancorp an attractive dividend stock, or better left on the shelf? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, First Internet Bancorp looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
While it's tempting to invest in First Internet Bancorp for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 2 warning signs with First Internet Bancorp and understanding them should be part of your investment process.
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.