A large part of investment returns can be generated by dividend-paying stock given their role in compounding returns over time. Midland States Bancorp Inc (NASDAQ:MSBI) has recently paid dividends to shareholders, and currently yields 2.8%. Does Midland States Bancorp tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
Here’s how I find good dividend stocks
If you are a dividend investor, you should always assess these five key metrics:
- Is their annual yield among the top 25% of dividend payers?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will it be able to continue to payout at the current rate in the future?
How does Midland States Bancorp fare?
The company currently pays out 95% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is not well-covered by its earnings. However, going forward, analysts expect MSBI’s payout to fall into a more sustainable range of 33% of its earnings, which leads to a dividend yield of 3.0%. Moreover, EPS should increase to $2.42, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
When assessing the forecast sustainability of a dividend it is also worth considering the cash flow of the business. Cash flow is important because companies with strong cash flow can usually sustain higher payout ratios.
If there is one thing that you want to be reliable in your life, it’s dividend stocks and their constant income stream. The reality is that it is too early to consider Midland States Bancorp as a dividend investment. It has only been consistently paying dividends for 2 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
In terms of its peers, Midland States Bancorp produces a yield of 2.8%, which is high for Banks stocks but still below the market’s top dividend payers.
After digging a little deeper into Midland States Bancorp’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. There are three fundamental aspects you should look at:
- Future Outlook: What are well-informed industry analysts predicting for MSBI’s future growth? Take a look at our free research report of analyst consensus for MSBI’s outlook.
- Valuation: What is MSBI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MSBI is currently mispriced by the market.
- Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.