Important news for shareholders and potential investors in First Merchants Corporation (NASDAQ:FRME): The dividend payment of US$0.22 per share will be distributed into shareholder on 21 September 2018, and the stock will begin trading ex-dividend at an earlier date, 06 September 2018. Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let’s take a look at First Merchants’s most recent financial data to examine its dividend characteristics in more detail.
How I analyze a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is their annual yield among the top 25% of dividend payers?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share amount increased over the past?
- Is its earnings sufficient to payout dividend at the current rate?
- Will it have the ability to keep paying its dividends going forward?
How does First Merchants fare?
The company currently pays out 29.8% of its earnings as a dividend, according to its trailing twelve-month data, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 29.5%, leading to a dividend yield of 2.0%. In addition to this, EPS should increase to $3.3.
If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. Dividend payments from First Merchants have been volatile in the past 10 years, with some years experiencing significant drops of over 25%. These characteristics do not bode well for income investors seeking reliable stream of dividends.
In terms of its peers, First Merchants generates a yield of 1.8%, which is on the low-side for Banks stocks.
Taking all the above into account, First Merchants is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. 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 pertinent factors you should look at:
- Future Outlook: What are well-informed industry analysts predicting for FRME’s future growth? Take a look at our free research report of analyst consensus for FRME’s outlook.
- Valuation: What is FRME 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 FRME 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.