First Midwest Bancorp, Inc.'s (NASDAQ:FMBI) investors are due to receive a payment of US$0.14 per share on 12th of October. This means the annual payment is 3.1% of the current stock price, which is above the average for the industry.
First Midwest Bancorp's Payment Has Solid Earnings Coverage
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, First Midwest Bancorp's dividend was comfortably covered by both cash flow and earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.
The next year is set to see EPS grow by 18.3%. 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 Midwest Bancorp Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2011, the first annual payment was US$0.04, compared to the most recent full-year payment of US$0.56. This implies that the company grew its distributions at a yearly rate of about 30% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
First Midwest Bancorp May Find It Hard To Grow The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. However, First Midwest Bancorp has only grown its earnings per share at 4.5% per annum over the past five years. Growth of 4.5% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
First Midwest Bancorp Looks Like A Great Dividend Stock
Overall, we like to see the dividend staying consistent, and we think First Midwest Bancorp might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for First Midwest Bancorp that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.