First Merchants Corporation's (NASDAQ:FRME) dividend will be increasing to US$0.32 on 17th of June. This makes the dividend yield about the same as the industry average at 2.9%.
First Merchants' Earnings Easily Cover the Distributions
We aren't too impressed by dividend yields unless they can be sustained over time. However, First Merchants' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
The next year is set to see EPS grow by 0.8%. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.
First Merchants Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the dividend has gone from US$0.04 to US$1.28. This means that it has been growing its distributions at 41% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend Looks Likely To Grow
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see First Merchants has been growing its earnings per share at 10% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
First Merchants Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
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. As an example, we've identified 2 warning signs for First Merchants that you should be aware of before investing. Is First Merchants not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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