The board of First Interstate BancSystem, Inc. (NASDAQ:FIBK) has announced that it will pay a dividend of $0.47 per share on the 20th of February. Based on this payment, the dividend yield on the company's stock will be 5.7%, which is an attractive boost to shareholder returns.
See our latest analysis for First Interstate BancSystem
First Interstate BancSystem's Earnings Will Easily Cover The Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable.
First Interstate BancSystem has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 86%, which means that First Interstate BancSystem would be able to pay its last dividend without pressure on the balance sheet.
Over the next 3 years, EPS is forecast to expand by 38.3%. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 70% over the same time period, which would make us comfortable with the sustainability of the dividend.
First Interstate BancSystem Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the annual payment back then was $0.64, compared to the most recent full-year payment of $1.88. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Dividend Growth Is Doubtful
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that First Interstate BancSystem's earnings per share has fallen at approximately 5.3% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
Our Thoughts On First Interstate BancSystem's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for First Interstate BancSystem that investors need to be conscious of moving forward. Is First Interstate BancSystem not quite the opportunity you were looking for? Why not check out our selection of top 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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