First Business Financial Services, Inc. (NASDAQ:FBIZ) has announced that it will be increasing its dividend from last year’s comparable payment on the 18th of May to $0.2275. The payment will take the dividend yield to 3.5%, which is in line with the average for the industry.
First Business Financial Services’ Earnings Will Easily Cover The Distributions
We aren’t too impressed by dividend yields unless they can be sustained over time.
First Business Financial Services has a long history of paying out dividends, with its current track record at a minimum of 10 years. While past records don’t necessarily translate into future results, the company’s payout ratio of 17% also shows that First Business Financial Services is able to comfortably pay dividends.
Looking forward, earnings per share is forecast to fall by 2.6% over the next year. But if the dividend continues along recent trends, we estimate the future payout ratio could be 20%, which we would consider to be quite comfortable looking forward, with most of the company’s earnings left over to grow the business in the future.
First Business Financial Services Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the dividend has gone from $0.14 total annually to $0.91. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. It is good to see that there has been strong dividend growth, and that there haven’t been any cuts for a long time.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. First Business Financial Services has impressed us by growing EPS at 28% per year over the past five years. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.
We Really Like First Business Financial Services’ Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won’t be a problem if this doesn’t become a trend, but could cause some turbulence in the next year. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we’ve picked out 1 warning sign for First Business Financial Services that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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