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It looks like First National Financial Corporation (TSE:FN) is about to go ex-dividend in the next 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. 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 National Financial's shares on or after the 30th of December will not receive the dividend, which will be paid on the 14th of January.
The company's upcoming dividend is CA$0.20 a share, following on from the last 12 months, when the company distributed a total of CA$2.85 per share to shareholders. Based on the last year's worth of payments, First National Financial stock has a trailing yield of around 8.6% on the current share price of CA$41.7. 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 National Financial can afford its dividend, and if the dividend could grow.
See our latest analysis for First National Financial
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. First National Financial paid out more than half (60%) of its earnings last year, which is a regular payout ratio for most companies.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, First National Financial's earnings per share have been growing at 16% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, First National Financial has increased its dividend at approximately 8.4% 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.