First Guaranty Bancshares, Inc. (NASDAQ:FGBI) has announced that it will pay a dividend of $0.16 per share on the 29th of March. The dividend yield will be 5.9% based on this payment which is still above the industry average.

View our latest analysis for First Guaranty Bancshares

First Guaranty Bancshares' Dividend Forecasted To Be Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained.

First Guaranty Bancshares has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions unfortunately do not guarantee future ones, and First Guaranty Bancshares' last earnings report actually showed that the company went over its net earnings in its total dividend distribution. This is very worrying for shareholders, as this shows that First Guaranty Bancshares will not be able to sustain its dividend at its current rate.

Over the next 3 years, EPS is forecast to expand by 83.4%. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 67% over the same time period, which would make us comfortable with the sustainability of the dividend.

First Guaranty Bancshares Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.437 in 2014 to the most recent total annual payment of $0.64. This implies that the company grew its distributions at a yearly rate of about 3.9% over that duration. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 16% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. 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.

An additional note is that the company has been raising capital by issuing stock equal to 16% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.