Here's Why We're Wary Of Buying Midland States Bancorp's (NASDAQ:MSBI) For Its Upcoming Dividend
Readers hoping to buy Midland States Bancorp, Inc. (NASDAQ:MSBI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You will need to purchase shares before the 13th of May to receive the dividend, which will be paid on the 21st of May.
Midland States Bancorp's next dividend payment will be US$0.28 per share. Last year, in total, the company distributed US$1.12 to shareholders. Last year's total dividend payments show that Midland States Bancorp has a trailing yield of 3.9% on the current share price of $28.72. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Midland States Bancorp has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for Midland States 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. Midland States Bancorp distributed an unsustainably high 112% of its profit as dividends to shareholders last year. Without more sustainable payment behaviour, the dividend looks precarious.
Generally, the higher a company's payout ratio, the more the dividend is at risk of being reduced.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Midland States Bancorp's earnings per share have fallen at approximately 14% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Midland States Bancorp has delivered 9.2% dividend growth per year on average over the past five years. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Midland States Bancorp is already paying out a high percentage of its income, so without earnings growth, we're doubtful of whether this dividend will grow much in the future.
To Sum It Up
Has Midland States Bancorp got what it takes to maintain its dividend payments? Earnings per share are in decline and Midland States Bancorp is paying out what we feel is an uncomfortably high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
Although, if you're still interested in Midland States Bancorp and want to know more, you'll find it very useful to know what risks this stock faces. For example, we've found 5 warning signs for Midland States Bancorp that we recommend you consider before investing in the business.
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.
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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