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First Foundation Inc. (NASDAQ:FFWM) stock is about to trade ex-dividend in 4 days. If you purchase the stock on or after the 4th of February, you won't be eligible to receive this dividend, when it is paid on the 15th of February.
First Foundation's next dividend payment will be US$0.09 per share, and in the last 12 months, the company paid a total of US$0.36 per share. Calculating the last year's worth of payments shows that First Foundation has a trailing yield of 1.8% on the current share price of $20.26. If you buy this business for its dividend, you should have an idea of whether First Foundation's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. First Foundation paid out just 15% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see First Foundation has grown its earnings rapidly, up 26% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last two years, First Foundation has lifted its dividend by approximately 34% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Should investors buy First Foundation for the upcoming dividend? Companies like First Foundation that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their 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. We think this is a pretty attractive combination, and would be interested in investigating First Foundation more closely.
While it's tempting to invest in First Foundation for the dividends alone, you should always be mindful of the risks involved. In terms of investment risks, we've identified 3 warning signs with First Foundation and understanding them should be part of your investment process.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.
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