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 First Bancorp (NASDAQ:FBNC) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 30th of March, you won’t be eligible to receive this dividend, when it is paid on the 24th of April.
First Bancorp’s next dividend payment will be US$0.18 per share, and in the last 12 months, the company paid a total of US$0.72 per share. Looking at the last 12 months of distributions, First Bancorp has a trailing yield of approximately 3.5% on its current stock price of $20.52. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. 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 Bancorp paid out just 17% 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?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That’s why it’s comforting to see First Bancorp’s earnings have been skyrocketing, up 20% per annum for the past five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, First Bancorp has lifted its dividend by approximately 8.4% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is First 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 Bancorp looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
So while First Bancorp looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. Our analysis shows 2 warning signs for First Bancorp that we strongly recommend you have a look at before investing in the company.
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.
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