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Be Sure To Check Out Meridian Corporation (NASDAQ:MRBK) Before It Goes Ex-Dividend

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Simply Wall St
·3 min read
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Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Meridian Corporation (NASDAQ:MRBK) is about to go ex-dividend in just 4 days. Investors can purchase shares before the 26th of February in order to be eligible for this dividend, which will be paid on the 15th of March.

Meridian's next dividend payment will be US$1.00 per share, which looks like a nice increase on last year, when the company distributed a total of US$0.50 to shareholders. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for Meridian

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Meridian is paying out just 5.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Meridian paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.

When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Meridian's earnings per share have been growing at 18% a year for the past five years.

Given that Meridian has only been paying a dividend for a year, there's not much of a past history to draw insight from.

Final Takeaway

Should investors buy Meridian for the upcoming dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating Meridian more closely.

In light of that, while Meridian has an appealing dividend, it's worth knowing the risks involved with this stock. Our analysis shows 3 warning signs for Meridian that we strongly recommend you have a look at before investing in the company.

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.