Could MidWestOne Financial Group, Inc. (NASDAQ:MOFG) be an attractive dividend share to own for the long haul? Investors are often drawn to strong companies with the idea of reinvesting the dividends. Yet sometimes, investors buy a popular dividend stock because of its yield, and then lose money if the company's dividend doesn't live up to expectations.
A slim 2.4% yield is hard to get excited about, but the long payment history is respectable. At the right price, or with strong growth opportunities, MidWestOne Financial Group could have potential. The company also bought back stock equivalent to around 1.0% of market capitalisation this year. There are a few simple ways to reduce the risks of buying MidWestOne Financial Group for its dividend, and we'll go through these below.
Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. As a result, we should always investigate whether a company can afford its dividend, measured as a percentage of a company's net income after tax. In the last year, MidWestOne Financial Group paid out 29% of its profit as dividends. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. Plus, there is room to increase the payout ratio over time.
From the perspective of an income investor who wants to earn dividends for many years, there is not much point buying a stock if its dividend is regularly cut or is not reliable. MidWestOne Financial Group has been paying dividends for a long time, but for the purpose of this analysis, we only examine the past 10 years of payments. The dividend has been stable over the past 10 years, which is great. We think this could suggest some resilience to the business and its dividends. During the past ten-year period, the first annual payment was US$0.20 in 2009, compared to US$0.81 last year. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time.
Dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.
Dividend Growth Potential
Dividend payments have been consistent over the past few years, but we should always check if earnings per share (EPS) are growing, as this will help maintain the purchasing power of the dividend. Earnings have grown at around 4.5% a year for the past five years, which is better than seeing them shrink! A payout ratio below 50% leaves ample room to reinvest in the business, and provides finanical flexibility. However, earnings per share are unfortunately not growing much. Might this suggest that the company should pay a higher dividend instead?
Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. We're glad to see MidWestOne Financial Group has a low payout ratio, as this suggests earnings are being reinvested in the business. Earnings growth has been limited, but we like that the dividend payments have been fairly consistent. MidWestOne Financial Group has a number of positive attributes, but falls short of our ideal dividend company. It may be worth a look at the right price, though.
Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 5 analysts we track are forecasting for MidWestOne Financial Group for free with public analyst estimates for the company.
We have also put together a list of global stocks with a market capitalisation above $1bn and yielding more 3%.
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