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
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.
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.
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.
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.
