Mercantile Bank (NASDAQ:MBWM) Is Increasing Its Dividend To $0.35
Mercantile Bank Corporation (NASDAQ:MBWM) has announced that it will be increasing its dividend from last year's comparable payment on the 13th of March to $0.35. The payment will take the dividend yield to 3.5%, which is in line with the average for the industry.
See our latest analysis for Mercantile Bank
Mercantile Bank's Earnings Will Easily Cover The Distributions
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.
Having distributed dividends for at least 10 years, Mercantile Bank has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Mercantile Bank's payout ratio of 26% is a good sign as this means that earnings decently cover dividends.
Over the next 3 years, EPS is forecast to fall by 21.3%. Fortunately, analysts forecast the future payout ratio to be 33% over the same time horizon, which is in the range that makes us comfortable with the sustainability of the dividend.
Mercantile Bank Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $0.44 in 2014 to the most recent total annual payment of $1.40. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend Looks Likely To Grow
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Mercantile Bank has seen EPS rising for the last five years, at 15% per annum. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
Mercantile Bank Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that Mercantile Bank is a strong income stock thanks to its track record and growing earnings. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for Mercantile Bank that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
