Dividends play a key role in compounding returns over time and can form a large part of our portfolio return. In the past 10 years Financial Institutions Inc (NASDAQ:FISI) has returned an average of 3.00% per year to investors in the form of dividend payouts. Does Financial Institutions tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. View our latest analysis for Financial Institutions
How I analyze a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
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Is their annual yield among the top 25% of dividend payers?
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Has it paid dividend every year without dramatically reducing payout in the past?
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Has dividend per share risen in the past couple of years?
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Is is able to pay the current rate of dividends from its earnings?
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Based on future earnings growth, will it be able to continue to payout dividend at the current rate?
How well does Financial Institutions fit our criteria?
The company currently pays out 41.63% of its earnings as a dividend, which means that the dividend is covered by earnings. However, going forward, analysts expect FISI’s payout to fall to 32.64% of its earnings, which leads to a dividend yield of 2.59%. However, EPS should increase to $2.26, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. Whilst its per-share payments have increased during the past 10 years, there has been some hiccups. Shareholders would have seen a few years of reduced payments in this time. Compared to its peers, Financial Institutions produces a yield of 2.68%, which is on the low-side for banks stocks.
Next Steps:
Considering the dividend attributes we analyzed above, Financial Institutions is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three key aspects you should further examine:
1. Future Outlook: What are well-informed industry analysts predicting for FISI’s future growth? Take a look at our free research report of analyst consensus for FISI’s outlook.
2. Valuation: What is FISI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether FISI is currently mispriced by the market.