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 December. Based on this payment, the dividend yield will be 3.2%, which is fairly typical for the industry.

See our latest analysis for First Merchants

First Merchants' Dividend Forecasted To Be Well Covered By Earnings

Solid dividend yields are great, but they only really help us if the payment is sustainable.

First Merchants has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Based on First Merchants' last earnings report, the payout ratio is at a decent 46%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Looking forward, EPS is forecast to rise by 27.2% over the next 3 years. Analysts forecast the future payout ratio could be 40% over the same time horizon, which is a number we think the company can maintain.

First Merchants Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from an annual total of $0.20 in 2014 to the most recent total annual payment of $1.40. This works out to be a compound annual growth rate (CAGR) of approximately 21% a year over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

First Merchants May Find It Hard To Grow The Dividend

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Unfortunately, First Merchants' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On First Merchants' Dividend

Overall, we think First Merchants is a solid choice as a dividend stock, even though the dividend wasn't raised this year. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for First Merchants that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.