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Readers hoping to buy First National Corporation (NASDAQ:FXNC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, First National investors that purchase the stock on or after the 27th of May will not receive the dividend, which will be paid on the 11th of June.
The company's next dividend payment will be US$0.12 per share, and in the last 12 months, the company paid a total of US$0.48 per share. Looking at the last 12 months of distributions, First National has a trailing yield of approximately 2.6% on its current stock price of $18.4. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether First National can afford its dividend, and if the dividend could grow.
See our latest analysis for First National
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. First National has a low and conservative payout ratio of just 23% of its income after tax.
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 how much of its profit First National paid out over the last 12 months.
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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see First National has grown its earnings rapidly, up 44% 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. First National has seen its dividend decline 1.5% per annum on average over the past 10 years, which is not great to see.
Final Takeaway
From a dividend perspective, should investors buy or avoid First National? Companies like First National that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, First National appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.