First Mid Bancshares (NASDAQ:FMBH) Is Increasing Its Dividend To $0.24

First Mid Bancshares, Inc.'s (NASDAQ:FMBH) dividend will be increasing from last year's payment of the same period to $0.24 on 30th of August. Despite this raise, the dividend yield of 2.5% is only a modest boost to shareholder returns.

See our latest analysis for First Mid Bancshares

First Mid Bancshares' Earnings Will Easily Cover The Distributions

Even a low dividend yield can be attractive if it is sustained for years on end.

Having distributed dividends for at least 10 years, First Mid Bancshares has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but First Mid Bancshares' payout ratio of 29% is a good sign as this means that earnings decently cover dividends.

The next year is set to see EPS grow by 7.4%. Assuming the dividend continues along recent trends, we think the future payout ratio could be 30% by next year, which is in a pretty sustainable range.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $0.42 in 2014, and the most recent fiscal year payment was $0.96. This works out to be a compound annual growth rate (CAGR) of approximately 8.6% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. First Mid Bancshares might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Earnings have grown at around 3.2% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, First Mid Bancshares has the option to increase the payout ratio to return more cash to shareholders.

An additional note is that the company has been raising capital by issuing stock equal to 16% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. The dividend has been at reasonable levels historically, but that hasn't translated into a consistent payment. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.

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 2 warning signs for First Mid Bancshares that investors should know about before committing capital to this stock. Is First Mid Bancshares not quite the opportunity you were looking for? Why not check out our selection of top 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.

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