Readers hoping to buy First Community Bankshares, Inc. (NASDAQ:FCBC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 5th of November, you won’t be eligible to receive this dividend, when it is paid on the 20th of November.
First Community Bankshares’s upcoming dividend is US$0.25 a share, following on from the last 12 months, when the company distributed a total of US$1.00 per share to shareholders. Calculating the last year’s worth of payments shows that First Community Bankshares has a trailing yield of 5.3% on the current share price of $18.98. If you buy this business for its dividend, you should have an idea of whether First Community Bankshares’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. First Community Bankshares paid out 51% of its earnings to investors last year, a normal payout level for most businesses.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we’re encouraged by the steady growth at First Community Bankshares, with earnings per share up 8.1% on average over the last five years.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, First Community Bankshares has lifted its dividend by approximately 9.6% 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
Has First Community Bankshares got what it takes to maintain its dividend payments? Earnings per share have been growing at a reasonable rate, and the company is paying out a bit over half its earnings as dividends. We think there are likely better opportunities out there.
If you want to look further into First Community Bankshares, it’s worth knowing the risks this business faces. We’ve identified 2 warning signs with First Community Bankshares (at least 1 which is a bit unpleasant), and understanding these 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.