It looks like Mercantile Bank Corporation (NASDAQ:MBWM) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 5th of September will not receive this dividend, which will be paid on the 18th of September.
Mercantile Bank's next dividend payment will be US$0.27 per share. Last year, in total, the company distributed US$1.08 to shareholders. Calculating the last year's worth of payments shows that Mercantile Bank has a trailing yield of 3.5% on the current share price of $30.77. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. That's why it's good to see Mercantile Bank paying out a modest 37% of its earnings.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at Mercantile Bank, with earnings per share up 7.0% on average over the last five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Mercantile Bank has delivered 21% dividend growth per year on average over the past 10 years. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Should investors buy Mercantile Bank for the upcoming dividend? Mercantile Bank has seen its earnings per share grow slowly in recent years, and the company reinvests more than half of its profits in the business, which generally bodes well for its future prospects. In summary, Mercantile Bank appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.
Ever wonder what the future holds for Mercantile Bank? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.