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First Foundation Inc. (NASDAQ:FFWM) stock is about to trade ex-dividend in two days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase First Foundation's shares on or after the 5th of May will not receive the dividend, which will be paid on the 16th of May.
The company's next dividend payment will be US$0.11 per share, on the back of last year when the company paid a total of US$0.44 to shareholders. Calculating the last year's worth of payments shows that First Foundation has a trailing yield of 2.0% on the current share price of $22.22. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for First Foundation
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. First Foundation paid out just 16% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It's encouraging to see First Foundation has grown its earnings rapidly, up 24% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past three years, First Foundation has increased its dividend at approximately 30% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Should investors buy First Foundation for the upcoming dividend? 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 Foundation looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.