The board of First Capital, Inc. (NASDAQ:FCAP) has announced that the dividend on 27th of September will be increased to $0.29, which will be 7.4% higher than last year's payment of $0.27 which covered the same period. This takes the annual payment to 3.4% of the current stock price, which is about average for the industry.

See our latest analysis for First Capital

First Capital's Payment Expected To Have Solid Earnings Coverage

Solid dividend yields are great, but they only really help us if the payment is sustainable.

Having distributed dividends for at least 10 years, First Capital has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but First Capital's payout ratio of 30% is a good sign as this means that earnings decently cover dividends.

If the trend of the last few years continues, EPS will grow by 3.6% over the next 12 months. Assuming the dividend continues along recent trends, we think the future payout ratio could be 31% by next year, which is in a pretty sustainable range.

First Capital 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 $0.80 in 2014, and the most recent fiscal year payment was $1.08. This means that it has been growing its distributions at 3.0% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 3.6% per year. While EPS growth is quite low, First Capital has the option to increase the payout ratio to return more cash to shareholders.

We Really Like First Capital's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. See if management have their own wealth at stake, by checking insider shareholdings in First Capital stock. Is First Capital 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.