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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 Hawaiian, Inc. (NASDAQ:FHB) is about to trade ex-dividend in the next 4 days. Investors can purchase shares before the 19th of February in order to be eligible for this dividend, which will be paid on the 5th of March.
First Hawaiian's next dividend payment will be US$0.26 per share. Last year, in total, the company distributed US$1.04 to shareholders. Looking at the last 12 months of distributions, First Hawaiian has a trailing yield of approximately 3.9% on its current stock price of $26.37. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether First Hawaiian can afford its dividend, and if the dividend could grow.
View our latest analysis for First Hawaiian
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 Hawaiian paid out 73% 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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. 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 explains why we're not overly excited about First Hawaiian's flat earnings over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. First Hawaiian has delivered an average of 6.8% per year annual increase in its dividend, based on the past four years of dividend payments.
To Sum It Up
Is First Hawaiian an attractive dividend stock, or better left on the shelf? Earnings per share have not grown at all, and the company pays out a bit over half its profits to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.