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 13th of March to $0.35. Based on this payment, the dividend yield for the company will be 3.5%, which is fairly typical for the industry.

Check out our latest analysis for Mercantile Bank

Mercantile Bank's Payment Expected To Have Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much.

Having distributed dividends for at least 10 years, Mercantile Bank has a long history of paying out a part of its earnings to shareholders. Based on Mercantile Bank's last earnings report, the payout ratio is at a decent 26%, meaning that the company is able to pay out its dividend with a bit of room to spare.

Over the next 3 years, EPS is forecast to fall by 21.3%. Fortunately, analysts forecast the future payout ratio to be 33% over the same time horizon, 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 dividend has gone from an annual total of $0.44 in 2014 to the most recent total annual payment of $1.36. This means that it has been growing its distributions at 12% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

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. It's encouraging to see that Mercantile Bank has been growing its earnings per share at 15% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Mercantile Bank's prospects of growing its dividend payments in the future.

We Really Like Mercantile Bank's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. 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. All of these factors considered, we think this has solid potential as a dividend 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. For example, we've picked out 1 warning sign for Mercantile Bank that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.