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Readers hoping to buy First National Financial Corporation (TSE:FN) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 29th of October, you won't be eligible to receive this dividend, when it is paid on the 16th of November.
First National Financial's next dividend payment will be CA$0.16 per share. Last year, in total, the company distributed CA$1.95 to shareholders. Last year's total dividend payments show that First National Financial has a trailing yield of 5.7% on the current share price of CA$34.43. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether First National Financial can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. First National Financial is paying out an acceptable 75% of its profit, a common payout level among most companies.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at First National Financial, with earnings per share up 9.8% on average over the last five years.
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