Don't Race Out To Buy First Interstate BancSystem, Inc. (NASDAQ:FIBK) Just Because It's Going Ex-Dividend
First Interstate BancSystem, Inc. Class A FIBK | 32.77 | +0.49% |
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see First Interstate BancSystem, Inc. (NASDAQ:FIBK) is about to trade ex-dividend in the next three days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase First Interstate BancSystem's shares on or after the 4th of November will not receive the dividend, which will be paid on the 14th of November.
The company's next dividend payment will be US$0.47 per share, on the back of last year when the company paid a total of US$1.88 to shareholders. Last year's total dividend payments show that First Interstate BancSystem has a trailing yield of 5.9% on the current share price of US$31.61. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether First Interstate BancSystem has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. It paid out 82% of its earnings as dividends last year, which is not unreasonable, but limits reinvestment in the business and leaves the dividend vulnerable to a business downturn. We'd be concerned if earnings began to decline.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's not ideal to see First Interstate BancSystem's earnings per share have been shrinking at 4.1% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. First Interstate BancSystem has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. First Interstate BancSystem is already paying out 82% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
From a dividend perspective, should investors buy or avoid First Interstate BancSystem? We're not overly enthused to see First Interstate BancSystem's earnings in retreat at the same time as the company is paying out more than half of its earnings as dividends to shareholders. First Interstate BancSystem 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.
Curious what other investors think of First Interstate BancSystem? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.