First Bancshares (NASDAQ:FBMS) Is Increasing Its Dividend To $0.20

The board of The First Bancshares, Inc. (NASDAQ:FBMS) has announced that it will be paying its dividend of $0.20 on the 25th of November, an increased payment from last year's comparable dividend. Based on this payment, the dividend yield for the company will be 2.4%, which is fairly typical for the industry.

Our analysis indicates that FBMS is potentially undervalued!

First Bancshares' Dividend Forecasted To Be Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much.

First Bancshares has a long history of paying out dividends, with its current track record at a minimum of 10 years. Taking data from its last earnings report, calculating for the company's payout ratio shows 25%, which means that First Bancshares would be able to pay its last dividend without pressure on the balance sheet.

The next 3 years are set to see EPS grow by 52.1%. Analysts estimate the future payout ratio will be 21% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

First Bancshares Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2012, the dividend has gone from $0.15 total annually to $0.80. This means that it has been growing its distributions at 18% per annum over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. First Bancshares has seen EPS rising for the last five years, at 16% per annum. First Bancshares definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

An additional note is that the company has been raising capital by issuing stock equal to 14% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

First Bancshares Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 1 warning sign for First Bancshares that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.