Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that FS Bancorp, Inc. (NASDAQ:FSBW) is about to go ex-dividend in just 4 days. Ex-dividend means that investors that purchase the stock on or after the 5th of November will not receive this dividend, which will be paid on the 19th of November.
FS Bancorp's next dividend payment will be US$0.21 per share, on the back of last year when the company paid a total of US$0.84 to shareholders. Last year's total dividend payments show that FS Bancorp has a trailing yield of 1.8% on the current share price of $46.31. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
See our latest analysis for FS Bancorp
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. FS Bancorp is paying out just 11% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. FS Bancorp paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see FS Bancorp has grown its earnings rapidly, up 39% a year for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. FS Bancorp has delivered 20% dividend growth per year on average over the past eight years. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
The Bottom Line
Is FS Bancorp worth buying for its dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, FS Bancorp looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
While it's tempting to invest in FS Bancorp for the dividends alone, you should always be mindful of the risks involved. For instance, we've identified 2 warning signs for FS Bancorp (1 is concerning) you should be aware of.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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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