First National Financial Corp (TSX:FN) currently offers an annual dividend of 7.25% that is paid out on a monthly basis. You may be thinking a dividend like that is not sustainable, but the payout is less than 50% of the company’s earnings per share.
First National’s earnings per share in the trailing twelve months totalled $3.73. The company’s monthly dividend of $0.1542 equates to $1.85 annually, for a payout of 49.6%. First National has also increased its dividend in each of the past five years, with the most recent payout hiked by 8.8%. In four years the company has increased its dividend by 32%, from $0.1167 a share in 2013.
A big reason for the higher dividend rate is that First National’s stock has declined by over 14% in the past 12 months. If there is no dividend reduction then the dividend rate is inversely related with the share price.
If the share price were to rise to $29 then the yield would shrink to about 6.4%. This is the importance of buying dividend stocks when they are ‘on sale’ since they present you an opportunity to lock in a high yield. The danger is if the stock is in a free fall and has not yet reached a bottom, as it could decline even further.
The company shouldn’t present a significant risk as it has seen strong year-over-year sales growth. In the past fiscal year the company’s revenue was over $1 billion, up 14% from the prior year and over 35% since 2013.
