Mercantile Bank (NASDAQ:MBWM) Is Paying Out A Larger Dividend Than Last Year

Mercantile Bank Corporation (NASDAQ:MBWM) will increase its dividend from last year's comparable payment on the 14th of June to $0.33. This will take the dividend yield to an attractive 4.6%, providing a nice boost to shareholder returns.

Check out our latest analysis for Mercantile Bank

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

If the payments aren't sustainable, a high yield for a few years won't matter that much.

Mercantile Bank 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 Mercantile Bank's payout ratio of 29% is a good sign as this means that earnings decently cover dividends.

EPS is set to fall by 10.6% over the next 12 months. But if the dividend continues along recent trends, we estimate the future payout ratio could be 36%, which we would consider to be quite comfortable looking forward, with most of the company's earnings left over to grow the business in the future.

Mercantile Bank Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was $0.36, compared to the most recent full-year payment of $1.32. This implies that the company grew its distributions at a yearly rate of about 14% 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 could be attracted to the stock based on the quality of its payment history. Mercantile Bank has impressed us by growing EPS at 16% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

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. 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. 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 makes us a bit uncomfortable) we think you should know about. 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.