It looks like First Merchants Corporation (NASDAQ:FRME) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 5th of September to receive the dividend, which will be paid on the 20th of September.
First Merchants's next dividend payment will be US$0.26 per share, and in the last 12 months, the company paid a total of US$1.04 per share. Based on the last year's worth of payments, First Merchants stock has a trailing yield of around 2.9% on the current share price of $35.72. If you buy this business for its dividend, you should have an idea of whether First Merchants's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. First Merchants paid out a comfortable 28% of its profit last year.
Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, First Merchants's earnings per share have been growing at 18% a year for the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. First Merchants has delivered an average of 1.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's good to see both earnings and the dividend have improved - although the former has been rising much quicker than the latter, possibly due to the company reinvesting more of its profits in growth.
From a dividend perspective, should investors buy or avoid First Merchants? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. Overall, First Merchants looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
Wondering what the future holds for First Merchants? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.