It looks like Meridian Corporation (NASDAQ:MRBK) is about to go ex-dividend in the next 4 days. You will need to purchase shares before the 26th of February to receive the dividend, which will be paid on the 15th of March.
Meridian's next dividend payment will be US$1.00 per share, which looks like a nice increase on last year, when the company distributed a total of US$0.50 to shareholders. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
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. Meridian is paying out just 5.8% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For this reason, we're glad to see Meridian's earnings per share have risen 18% per annum over the last 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.
The Bottom Line
From a dividend perspective, should investors buy or avoid Meridian? Companies like Meridian that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Overall, Meridian looks like a promising dividend stock in this analysis, and we think it would be worth investigating further.
In light of that, while Meridian has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 3 warning signs for Meridian (1 can't be ignored!) that you ought to be aware of before buying the shares.
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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What are the risks and opportunities for Meridian?
Trading at 69.1% below our estimate of its fair value
Earnings are forecast to grow 3.45% per year
No risks detected for MRBK from our risks checks.
This article by Simply Wall St is general in nature. 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.
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Meridian Corporation operates as the holding company for Meridian Bank that provides commercial banking products and services in Pennsylvania, New Jersey, Delaware, and Maryland.
Undervalued with excellent balance sheet and pays a dividend.