Stock Analysis

Meridian Corporation (NASDAQ:MRBK) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

  •  Updated
NasdaqGS:MRBK
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It looks like Meridian Corporation (NASDAQ:MRBK) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 10th of February, you won't be eligible to receive this dividend, when it is paid on the 22nd of February.

Meridian's next dividend payment will be US$0.13 per share, on the back of last year when the company paid a total of US$0.50 to shareholders. Based on the last year's worth of payments, Meridian stock has a trailing yield of around 2.3% on the current share price of $21.41. If you buy this business for its dividend, you should have an idea of whether Meridian's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Meridian

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Meridian has a low and conservative payout ratio of just 5.8% of its income after tax. Meridian paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.

Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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NasdaqGS:MRBK Historic Dividend February 5th 2021

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Meridian's earnings per share have been growing at 18% a year for the past five years.

Given that Meridian has only been paying a dividend for a year, there's not much of a past history to draw insight from.

To Sum It Up

Is Meridian worth buying for its dividend? Companies like Meridian that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Meridian ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.

While it's tempting to invest in Meridian for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 2 warning signs we've spotted with Meridian (including 1 which is significant).

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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