A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Midland States Bancorp, Inc. (NASDAQ:MSBI) has paid a dividend to shareholders in the last few years. It currently yields 3.8%. Does Midland States Bancorp tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.
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5 questions to ask before buying a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
- Is it the top 25% annual dividend yield payer?
- Has it consistently paid a stable dividend without missing a payment or drastically cutting payout?
- Has dividend per share risen in the past couple of years?
- Is is able to pay the current rate of dividends from its earnings?
- Will the company be able to keep paying dividend based on the future earnings growth?
How well does Midland States Bancorp fit our criteria?
Midland States Bancorp has a trailing twelve-month payout ratio of 76%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting lower payout ratio of 34% which, assuming the share price stays the same, leads to a dividend yield of 4.3%. However, EPS should increase to $2.44, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.
If you want to dive deeper into the sustainability of a certain payout ratio, you may wish to consider the cash flow of the business. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.
Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider Midland States Bancorp as a dividend investment. It has only been consistently paying dividends for 3 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.
Relative to peers, Midland States Bancorp has a yield of 3.8%, which is high for Banks stocks.
With this in mind, I definitely rank Midland States Bancorp as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three relevant factors you should further research:
- Future Outlook: What are well-informed industry analysts predicting for MSBI’s future growth? Take a look at our free research report of analyst consensus for MSBI’s outlook.
- Valuation: What is MSBI worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MSBI is currently mispriced by the market.
- Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.