First Bank (NASDAQ:FRBA) has announced that it will pay a dividend of $0.06 per share on the 22nd of November. Including this payment, the dividend yield on the stock will be 1.7%, which is a modest boost for shareholders' returns.

See our latest analysis for First Bank

First Bank's Earnings Will Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible.

Having paid out dividends for 8 years, First Bank has a good history of paying out a part of its earnings to shareholders. Using data from its latest earnings report, First Bank's payout ratio sits at 15%, an extremely comfortable number that shows that it can pay its dividend.

Over the next year, EPS is forecast to expand by 3.5%. If the dividend continues on this path, the future payout ratio could be 17% by next year, which we think can be pretty sustainable going forward.

First Bank Doesn't Have A Long Payment History

First Bank's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2016, the annual payment back then was $0.08, compared to the most recent full-year payment of $0.24. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. First Bank has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. First Bank has seen EPS rising for the last five years, at 19% per annum. With a decent amount of growth and a low payout ratio, we think this bodes well for First Bank's prospects of growing its dividend payments in the future.

We Really Like First Bank's Dividend

Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for First Bank that investors need to be conscious of moving forward. Is First Bank not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.