Merchants Bancorp (NASDAQ:MBIN) has announced that it will pay a dividend of US$0.09 per share on the 1st of October. This payment means the dividend yield will be 1.0%, which is below the average for the industry.
Merchants Bancorp's Earnings Easily Cover the Distributions
If it is predictable over a long period, even low dividend yields can be attractive. However, prior to this announcement, Merchants Bancorp's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
Over the next year, EPS is forecast to fall by 21.1%. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 7.1%, which is comfortable for the company to continue in the future.
Merchants Bancorp Doesn't Have A Long Payment History
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from US$0.20 in 2017 to the most recent annual payment of US$0.36. This works out to be a compound annual growth rate (CAGR) of approximately 16% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see Merchants Bancorp has been growing its earnings per share at 40% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
Merchants Bancorp Looks Like A Great Dividend Stock
Overall, we like to see the dividend staying consistent, and we think Merchants Bancorp might even raise payments in the future. The earnings easily cover the company's distributions, and the company is generating plenty of cash. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Merchants Bancorp that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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