FirstCash Holdings, Inc (NASDAQ:FCFS) will increase its dividend from last year's comparable payment on the 26th of August to $0.33. Even though the dividend went up, the yield is still quite low at only 1.8%.

See our latest analysis for FirstCash Holdings

FirstCash Holdings' Earnings Easily Cover The Distributions

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. However, FirstCash Holdings' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 119.4% over the next year. If the dividend continues on this path, the payout ratio could be 17% by next year, which we think can be pretty sustainable going forward.

FirstCash Holdings Doesn't Have A Long Payment History

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2015, the dividend has gone from $0.50 total annually to $1.32. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. FirstCash Holdings has seen EPS rising for the last five years, at 15% per annum. FirstCash Holdings definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

An additional note is that the company has been raising capital by issuing stock equal to 17% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

FirstCash Holdings Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that FirstCash Holdings is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.