First Merchants (NASDAQ:FRME) Is Paying Out A Dividend Of $0.35

First Merchants Corporation (NASDAQ:FRME) has announced that it will pay a dividend of $0.35 per share on the 20th of September. This means that the annual payment will be 3.8% of the current stock price, which is in line with the average for the industry.

See our latest analysis for First Merchants

First Merchants' Earnings Will Easily Cover The Distributions

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

First Merchants has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but First Merchants' payout ratio of 44% is a good sign as this means that earnings decently cover dividends.

The next year is set to see EPS grow by 8.9%. If the dividend continues along recent trends, we estimate the future payout ratio will be 46%, which is in the range that makes us comfortable with the sustainability of the dividend.

First Merchants Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2014, the dividend has gone from $0.20 total annually to $1.40. This implies that the company grew its distributions at a yearly rate of about 21% over that duration. 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.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. First Merchants hasn't seen much change in its earnings per share over the last five years.

In Summary

Overall, a consistent dividend is a good thing, and we think that First Merchants has the ability to continue this into the future. With shrinking earnings, the company may see some issues maintaining the dividend even though they look pretty sustainable for now. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for First Merchants that you should be aware of before investing. 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.