Have you been keeping an eye on First Merchants Corporation’s (NASDAQ:FRME) upcoming dividend of $0.18 per share payable on the 16 March 2018? Then you only have 3 days left before the stock starts trading ex-dividend on the 01 March 2018. Is this future income a persuasive enough catalyst for investors to think about First Merchants as an investment today? Below, I’m going to look at the latest data and analyze the stock and its dividend property in further detail. See our latest analysis for First Merchants
5 checks you should use to assess a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Does it pay an annual yield higher than 75% of dividend payers?
- Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
- Has dividend per share risen in the past couple of years?
- Does earnings amply cover its dividend payments?
- Will it be able to continue to payout at the current rate in the future?
How does First Merchants fare?
The current trailing twelve-month payout ratio for the stock is 32.39%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 27.08%, leading to a dividend yield of 1.97%. However, EPS should increase to $2.97, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. 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 has a yield of 1.69%, which is on the low-side for Banks stocks.
Now you know to keep in mind the reason why investors should be careful investing in First Merchants for the dividend. 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. I’ve put together three important factors you should further examine:
- 1. 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.
- 2. 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.
- 3. 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 pass 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.