Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Mackinac Financial Corporation (NASDAQ:MFNC) has paid a dividend to shareholders. It currently yields 2.9%. Let’s dig deeper into whether Mackinac Financial should have a place in your portfolio.
How I analyze a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is its annual yield among the top 25% of dividend-paying companies?
- Has it paid dividend every year without dramatically reducing payout in the past?
- Has the amount of dividend per share grown over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will the company be able to keep paying dividend based on the future earnings growth?
Does Mackinac Financial pass our checks?
The current trailing twelve-month payout ratio for the stock is 79.9%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect MFNC’s payout to fall to 38.7% of its earnings, which leads to a dividend yield of 3.2%. However, EPS should increase to $1.08, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A company with strong cash flow, relative to earnings, can sometimes sustain a high pay out ratio.
If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. Unfortunately, it is really too early to view Mackinac Financial as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Compared to its peers, Mackinac Financial generates a yield of 2.9%, which is high for Banks stocks but still below the market’s top dividend payers.
Taking all the above into account, Mackinac Financial is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. 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. Below, I’ve compiled three relevant factors you should further examine:
- Future Outlook: What are well-informed industry analysts predicting for MFNC’s future growth? Take a look at our free research report of analyst consensus for MFNC’s outlook.
- Valuation: What is MFNC 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 MFNC 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.