First Bank (NASDAQ:FRBA) stock is about to trade ex-dividend in four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase First Bank's shares on or after the 5th of August, you won't be eligible to receive the dividend, when it is paid on the 20th of August.

The company's next dividend payment will be US$0.03 per share, and in the last 12 months, the company paid a total of US$0.12 per share. Based on the last year's worth of payments, First Bank stock has a trailing yield of around 0.9% on the current share price of $13.325. If you buy this business for its dividend, you should have an idea of whether First Bank's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for First Bank

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. First Bank has a low and conservative payout ratio of just 9.1% of its income after tax.

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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see First Bank's earnings have been skyrocketing, up 26% per annum for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past five years, First Bank has increased its dividend at approximately 8.4% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Should investors buy First Bank for the upcoming 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. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Overall, First Bank looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.

In light of that, while First Bank has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 1 warning sign for First Bank and you should be aware of it before buying any shares.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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