The board of First Interstate BancSystem, Inc. (NASDAQ:FIBK) has announced that it will pay a dividend of $0.47 per share on the 14th of November. This makes the dividend yield 5.9%, which will augment investor returns quite nicely.

Check out our latest analysis for First Interstate BancSystem

First Interstate BancSystem's Payment Expected To Have Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much.

First Interstate BancSystem has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but First Interstate BancSystem's payout ratio of 82% is a good sign as this means that earnings decently cover dividends.

Over the next 3 years, EPS is forecast to expand by 21.5%. Despite the current payout ratio being slightly elevated, analysts estimate the future payout ratio will be 74% over the same time period, which would make us comfortable with the sustainability of the dividend.

First Interstate BancSystem Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $0.56 in 2014, and the most recent fiscal year payment was $1.88. This means that it has been growing its distributions at 13% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Dividend Growth May Be Hard To Achieve

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. It's not great to see that First Interstate BancSystem's earnings per share has fallen at approximately 3.6% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. 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.

Our Thoughts On First Interstate BancSystem's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about First Interstate BancSystem's payments, as there could be some issues with sustaining them into the future. Although they have been consistent in the past, we think the payments are a little high to be sustained. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for First Interstate BancSystem that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.