Mercantile Bank (NASDAQ:MBWM) Is Increasing Its Dividend To $0.37

The board of Mercantile Bank Corporation (NASDAQ:MBWM) has announced that it will be paying its dividend of $0.37 on the 19th of March, an increased payment from last year's comparable dividend. The payment will take the dividend yield to 3.0%, which is in line with the average for the industry.

Check out our latest analysis for Mercantile Bank

Mercantile Bank's Dividend Forecasted To Be Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time.

Having distributed dividends for at least 10 years, Mercantile Bank has a long history of paying out a part of its earnings to shareholders. Taking data from its last earnings report, calculating for the company's payout ratio shows 29%, which means that Mercantile Bank would be able to pay its last dividend without pressure on the balance sheet.

Over the next 3 years, EPS is forecast to expand by 2.0%. Analysts estimate the future payout ratio will be 31% over the same time period, which is in the range that makes us comfortable with the sustainability of the dividend.

Mercantile Bank Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was $0.48 in 2015, and the most recent fiscal year payment was $1.44. This implies that the company grew its distributions at a yearly rate of about 12% 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.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Mercantile Bank has grown earnings per share at 10% 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.

We Really Like Mercantile Bank's Dividend

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. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Mercantile Bank that you should be aware of before investing. 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.