The First Bancorp, Inc. (NASDAQ:FNLC) has announced that it will be increasing its dividend on the 22nd of July to US$0.34, which will be 6.3% higher than last year. This will take the annual payment from 4.2% to 4.3% of the stock price, which is above what most companies in the industry pay.
First Bancorp's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, First Bancorp was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share could rise by 14.7% over the next year if the trend from the last few years continues. Assuming the dividend continues along recent trends, we think the payout ratio could be 36% by next year, which is in a pretty sustainable range.
First Bancorp Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from US$0.78 in 2012 to the most recent annual payment of US$1.28. This works out to be a compound annual growth rate (CAGR) of approximately 5.1% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that First Bancorp has grown earnings per share at 15% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
We Really Like First Bancorp's Dividend
Overall, a dividend increase is always good, and we think that First Bancorp 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.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Now, if you want to look closer, it would be worth checking out our free research on First Bancorp management tenure, salary, and performance. 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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