Mercantile Bank's (NASDAQ:MBWM) Shareholders Will Receive A Bigger Dividend Than Last Year

Mercantile Bank Corporation (NASDAQ:MBWM) has announced that it will be increasing its dividend from last year's comparable payment on the 19th of March to $0.37. The payment will take the dividend yield to 3.1%, which is in line with the average for the industry.

View our latest analysis for Mercantile Bank

Mercantile Bank's Earnings Will Easily Cover The Distributions

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

Mercantile Bank has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. 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.

The next 3 years are set to see EPS grow by 2.0%. Analysts forecast the future payout ratio could be 31% over the same time horizon, which is a number we think the company can maintain.

Mercantile Bank Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from an annual total of $0.48 in 2015 to the most recent total annual payment of $1.48. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. 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

Investors could be attracted to the stock based on the quality of its payment history. 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.

Mercantile Bank Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Mercantile Bank that investors should take into consideration. 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.