Why It Might Not Make Sense To Buy MainStreet Bancshares, Inc. (NASDAQ:MNSB) For Its Upcoming Dividend

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that MainStreet Bancshares, Inc. (NASDAQ:MNSB) is about to go ex-dividend in just four days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase MainStreet Bancshares' shares on or after the 9th of May, you won't be eligible to receive the dividend, when it is paid on the 20th of May.

The company's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Based on the last year's worth of payments, MainStreet Bancshares has a trailing yield of 2.0% on the current stock price of US$19.61. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. MainStreet Bancshares reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term.

Check out our latest analysis for MainStreet Bancshares

Click here to see how much of its profit MainStreet Bancshares paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. MainStreet Bancshares was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, three years ago, MainStreet Bancshares has lifted its dividend by approximately 26% a year on average.

Remember, you can always get a snapshot of MainStreet Bancshares's financial health, by checking our visualisation of its financial health, here.

The Bottom Line

Is MainStreet Bancshares an attractive dividend stock, or better left on the shelf? It's definitely not great to see that it paid a dividend despite reporting a loss last year. Worse, the general trend in its earnings looks negative in recent times. These characteristics don't generally lead to outstanding dividend performance, and investors may not be happy with the results of owning this stock for its dividend.

With that in mind though, if the poor dividend characteristics of MainStreet Bancshares don't faze you, it's worth being mindful of the risks involved with this business. Every company has risks, and we've spotted 1 warning sign for MainStreet Bancshares you should know about.

If you're in the market for strong dividend payers, we recommend checking our selection of top 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.