MetroCity Bankshares, Inc. (NASDAQ:MCBS) has announced that it will be increasing its dividend on the 12th of August to US$0.12. The announced payment will take the dividend yield to 2.2%, which is in line with the average for the industry.
MetroCity Bankshares' Dividend Is Well Covered By Earnings
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, prior to this announcement, MetroCity Bankshares' dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
Looking forward, earnings per share is forecast to rise by 24.6% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 22%, which is in the range that makes us comfortable with the sustainability of the dividend.
MetroCity Bankshares Doesn't Have A Long Payment History
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from US$0.12 in 2016 to the most recent annual payment of US$0.40. This implies that the company grew its distributions at a yearly rate of about 27% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
MetroCity Bankshares May Find It Hard To Grow The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. Earnings per share has been crawling upwards at 4.3% per year. While EPS growth is quite low, MetroCity Bankshares has the option to increase the payout ratio to return more cash to shareholders.
Our Thoughts On MetroCity Bankshares' Dividend
Overall, it's great to see the dividend being raised and that it is still in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for MetroCity Bankshares that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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