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Over the past 10 years Mercantile Bank Corporation (NASDAQ:MBWM) has been paying dividends to shareholders. The stock currently pays out a dividend yield of 3.1%, and has a market cap of US$550m. Does Mercantile Bank tick all the boxes of a great dividend stock? Below, I'll take you through my analysis.
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
- Is it paying an annual yield above 75% of dividend payers?
- Does it consistently pay out dividends without missing a payment of significantly cutting payout?
- Has it increased its dividend per share amount over the past?
- 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 Mercantile Bank fare?
The company currently pays out 37% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. In the near future, analysts are predicting a payout ratio of 40% which, assuming the share price stays the same, leads to a dividend yield of 3.2%. Furthermore, EPS should increase to $2.56.
When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. In the case of MBWM it has increased its DPS from $0.16 to $1.04 in the past 10 years. It has also been paying out dividend consistently during this time, as you'd expect for a company increasing its dividend levels. These are all positive signs of a great, reliable dividend stock.
Compared to its peers, Mercantile Bank generates a yield of 3.1%, which is high for Banks stocks but still below the market's top dividend payers.
With these dividend metrics in mind, I definitely rank Mercantile Bank as a strong income stock, and is worth further research for anyone who considers dividends an important part of their portfolio strategy. 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 factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for MBWM’s future growth? Take a look at our free research report of analyst consensus for MBWM’s outlook.
- Valuation: What is MBWM 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 MBWM is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. 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.