Mercantile Bank (NASDAQ:MBWM) Will Pay A Larger Dividend Than Last Year At $0.34

Mercantile Bank Corporation's (NASDAQ:MBWM) dividend will be increasing from last year's payment of the same period to $0.34 on 13th of September. This takes the annual payment to 3.9% of the current stock price, which is about average for the industry.

Check out our latest analysis for Mercantile Bank

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

Solid dividend yields are great, but they only really help us if the payment is sustainable.

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 26%, which means that Mercantile Bank would be able to pay its last dividend without pressure on the balance sheet.

Looking forward, earnings per share is forecast to fall by 14.5% over the next year. But if the dividend continues along the path it has been on recently, we estimate the future payout ratio could be 35%, which would be comfortable for the company to continue in the future.

Mercantile Bank Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2013, the annual payment back then was $0.36, compared to the most recent full-year payment of $1.32. This works out to be a compound annual growth rate (CAGR) of approximately 14% a year 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

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Mercantile Bank has seen EPS rising for the last five years, at 17% per annum. Mercantile Bank definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

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. The earnings easily cover the company's distributions, and the company is generating plenty of cash. We should point out that the earnings are expected to fall over the next 12 months, which won't be a problem if this doesn't become a trend, but could cause some turbulence in the next year. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Mercantile Bank that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.