First Midwest Bancorp, Inc. (NASDAQ:FMBI) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 26th of September in order to be eligible for this dividend, which will be paid on the 8th of October.

First Midwest Bancorp's next dividend payment will be US$0.1 per share. Last year, in total, the company distributed US$0.6 to shareholders. Looking at the last 12 months of distributions, First Midwest Bancorp has a trailing yield of approximately 2.8% on its current stock price of $19.9. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether First Midwest Bancorp can afford its dividend, and if the dividend could grow.

Check out our latest analysis for First Midwest Bancorp

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately First Midwest Bancorp's payout ratio is modest, at just 28% of profit.

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.

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

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. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see First Midwest Bancorp's earnings per share have risen 11% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. First Midwest Bancorp's dividend payments per share have declined at 4.6% per year on average over the past ten years, which is uninspiring. First Midwest Bancorp is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.

The Bottom Line

Is First Midwest Bancorp worth buying for its dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. In summary, First Midwest Bancorp appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

Curious what other investors think of First Midwest Bancorp? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.