Mercantile Bank (NASDAQ:MBWM) Has Announced That It Will Be Increasing Its Dividend To $0.34

Mercantile Bank Corporation (NASDAQ:MBWM) will increase its dividend from last year's comparable payment on the 13th of September to $0.34. Based on this payment, the dividend yield for the company will be 3.9%, which is fairly typical for the industry.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Mercantile Bank's stock price has increased by 42% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for Mercantile Bank

Mercantile Bank's Payment Expected To Have Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important.

Having distributed dividends for at least 10 years, Mercantile Bank has a long history of paying out a part of its earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Mercantile Bank's payout ratio of 26% is a good sign as this means that earnings decently cover dividends.

EPS is set to fall by 14.5% over the next 12 months. But assuming the dividend continues along recent trends, we believe the future payout ratio could be 35%, which we are pretty comfortable with and we think would be feasible on an earnings basis.

Mercantile Bank Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $0.36 in 2013, and the most recent fiscal year payment was $1.36. This implies that the company grew its distributions at a yearly rate of about 14% over that duration. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Mercantile Bank has grown earnings per share at 17% per year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.

Mercantile Bank Looks Like A Great Dividend Stock

Overall, a dividend increase is always good, and we think that Mercantile Bank is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Mercantile Bank has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is Mercantile Bank 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.