MidWestOne Financial Group's (NASDAQ:MOFG) Dividend Will Be $0.2425

The board of MidWestOne Financial Group, Inc. (NASDAQ:MOFG) has announced that it will pay a dividend of $0.2425 per share on the 16th of December. This payment means that the dividend yield will be 3.3%, which is around the industry average.

See our latest analysis for MidWestOne Financial Group

MidWestOne Financial Group's Payment Expected To Have Solid Earnings Coverage

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

Having distributed dividends for at least 10 years, MidWestOne Financial Group has a long history of paying out a part of its earnings to shareholders. But while this history shows that the company was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company did not make enough earnings to cover its dividend payout. This is an alarming sign for the sustainability of its dividends, as it may mean that MidWestOne Financial Groupis pulling cash from elsewhere to keep its shareholders happy.

Analysts expect a massive rise in earnings per share in the next 3 years. They also estimate that the future payout ratio will be 31% in the same time horizon, so there isn't too much pressure on the dividend.

MidWestOne Financial Group Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2014, the annual payment back then was $0.58, compared to the most recent full-year payment of $0.97. This implies that the company grew its distributions at a yearly rate of about 5.3% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. MidWestOne Financial Group's EPS has fallen by approximately 12% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

An additional note is that the company has been raising capital by issuing stock equal to 32% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think MidWestOne Financial Group is a great stock to add to your portfolio if income is your focus.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for MidWestOne Financial Group that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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