Last update on 2024-06-27

Mercantile Bank (MBWM) - Dividend Analysis (Final Score: 5/8)

Analyzing Mercantile Bank's (MBWM) dividend sustainability using an 8-criteria score, achieving a final score of 5/8. Discover performance insights and stability.

Short Analysis - Dividend Score: 5

We're running Mercantile Bank (MBWM) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis of Mercantile Bank (MBWM) uses an 8-criteria scoring system and produced a score of 5 out of 8, indicating a mixed performance. MBWM's dividend yield of 3.3185% is notably higher than the industry average, which is a positive sign for investors focusing on income. The bank's dividend growth rate is extremely volatile, with large spikes and significant drops, making it unreliable despite having an average growth rate of 34.3572%. The average payout ratio is 31.82%, comfortably below the 65% threshold, suggesting dividend sustainability. The coverage of dividends by earnings and cash flow shows fluctuating trends but has generally improved in recent years. MBWM has shown significant instability in its dividend payments, especially during the financial crisis, but it has rebounded in recent years. The company has been paying dividends for over 25 years, yet its stock repurchases have been inconsistent, with an average frequency of repurchase every 4.75 years.

Insights for Value Investors Seeking Stable Income

Given the mixed signals from the dividend analysis, potential investors should approach Mercantile Bank (MBWM) with caution. The company's high dividend yield and sustainable payout ratio are appealing. However, the volatility in dividend growth, inconsistent dividend history during financial downturns, and sporadic stock repurchases suggest potential risks. It might be worthwhile for income-oriented investors to look into MBWM for its current yield, but one should be aware of the historical uncertainties and be prepared for possible fluctuations. Conducting more in-depth research and possibly seeking professional financial advice is recommended before making an investment decision.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Mercantile Bank's dividend yield is compared to the industry average to determine its relative performance and attractiveness to dividend-seeking investors.

Mercantile Bank (MBWM) currently has a dividend yield of 3.3185%, which is significantly higher than the industry average dividend yield of 2.76%. This would generally be considered a positive indicator for income-focused investors, as a higher dividend yield suggests that the company is returning a larger portion of its income to shareholders. Over the last 20 years, MBWM's dividend yield has seen considerable fluctuation, peaking at 11.7983% in 2014, with varying performance trends in other years. Noteworthy is the financial crisis period around 2008 where the yield dramatically increased, likely due to sharp declines in stock price from $35.9048 in 2006 to $4.3 in 2008 while the dividend per share decreased only slightly. This historical volatility could be a point of concern. Nonetheless, in recent years, the yield has stabilized and consistently outperformed the industry average, bolstered by the company's increasing dividend per share and relatively steady stock price. Overall, the current trend of the company's dividend yield being higher than the industry average is a good sign for investors, but the historical volatility should be noted.

Average annual Growth Rate higher than 5% in the last 20 years?

The Dividend Growth Rate (DGR) measures the annualized percentage rate of growth of a company's dividend. A DGR above 5% over a long period, like 20 years, suggests robust and sustainable dividend growth, indicating financial health and consistent earnings increases.

Mercantile Bank's (MBWM) dividend growth rate shows significant volatility over the past 20 years. Despite large spikes, especially around the years 2012 and 2014 with 400% and 451.1111% growth respectively, and significant decreases in other years (e.g., -100% in 2011 and -85.7143% in 2010), the average dividend ratio stands at 34.3572%. This exceptionally high average is driven by the large positive spikes, but the inconsistency and sharp decreases in several years indicate an unstable dividend growth trend. Thus, while the high average growth rate numerically suggests a growth rate far exceeding 5%, the erratic nature of these changes is concerning. A stable DGR above 5% would be more encouraging, but MBWM's fluctuating dividends hint at potential risks and uncertainties regarding their dividend policy. Such inconsistency might require caution for investors relying on steady dividend income.

Average annual Payout Ratio lower than 65% in the last 20 years?

Explain the criterion for Mercantile Bank (MBWM) and why it is important to consider

The Average Payout Ratio for Mercantile Bank (MBWM) over the last 20 years is 31.82%, which is comfortably below the 65% threshold. This bodes well as it suggests that the company is retaining a good portion of its earnings while also being able to sustain and potentially grow its dividend payments. While there are some years with highly negative or significantly high payout ratios like 2008 and 2014, on average, the payout ratio remains within a healthy range. Overall, this trend is good for the stability and reliability of MBWM's dividends.

Dividends Well Covered by Earnings?

Dividends covered by earnings assess the sustainability of dividend payments. A higher coverage ratio suggests better sustainability.

Based on the provided data, Mercantile Bank's earnings per share (EPS) have generally shown an upward trend since the significant losses in 2009. The years with extremely low or negative dividend coverage (2008-2010) align with the global financial crisis, indicating financial strain during that period. Post-crisis, the coverage improves, with the ratio stabilizing above 0.3 after 2010, peaking at 1.939 in 2014 when EPS was substantially higher than dividends. A stable or growing EPS, coupled with a sustainable dividend payout, indicates a positive trend in recent years. However, the 2014 spike in dividend coverage seems outlier-like, demanding deeper scrutiny. Overall, the improving trend in earnings and dividend coverage in recent years is a positive indicator.

Dividends Well Covered by Cash Flow?

Covering dividends with cash flow ensures sustainability. It's a measure of financial health and ability to reward shareholders without risking liquidity.

Mercantile Bank's Dividend Coverage Ratio has shown significant fluctuations over the past two decades. Early years like 2003 (0.198) and 2005 (0.183) exhibited fairly low coverage, indicating stress in covering dividends solely through free cash flow. A notable anomaly was in 2009, where the ratio turned negative (-0.126), likely due to the financial crisis hitting free cash flow hard at -$8.8M while dividends still needed to be paid. Post-2009, consistent improvements are visible with 2014 (1.995) being an exceptional year where free cash flow remarkably outpaced dividend payouts. The trend gets steadier post-2015, with high points in 2018 (0.496) and reaching a recent low in 2022 (0.168), right before rebounding to 0.350 in 2023. Overall, this varied pattern indicates periods of strong financial health interspersed with challenges, reflecting resilience particularly through increasing post-crisis coverage ratios. The recent years’ coverage ratios, albeit lower, suggest a cautious approach balancing between rewarding shareholders and maintaining financial prudence. Consistent higher ratios post-2016 illustrate firm's strategic improvement in managing dividend coverage.

Stable Dividends Since the Company Began Paying Dividends?

Stable dividends indicate consistent earnings and financial health, giving investors confidence in future payouts.

Mercantile Bank (MBWM) has exhibited significant fluctuations in its dividends over the past 20 years. Notably, the year 2008 saw a dramatic reduction from a dividend per share of $0.5533 down to $0.31, a drop of approximately 43.98%. More alarmingly, in the years that followed, the dividends per share fell further, with 2009 witnessing a plummet to $0.07 and 2010 seeing an almost complete elimination of dividends at $0.01. The dividend was at zero in 2011. These sharp decreases highlight a period of financial instability, likely exacerbated by the global financial crisis during that time. While there has been a rebound in recent years, with dividends reaching $1.34 per share in 2023, this history of volatility may raise red flags for potential income-seeking investors who prioritize stable and reliable dividend yields. Although the high dividends of recent years reflect recovery and resilience, the drastic reductions during past financial difficulties suggest vulnerabilities that could be of concern. Investors should weigh these historical fluctuations against the overall recovery and consider the company's ability to maintain stable dividends in potentially adverse conditions in the future. This trend could be considered both good and bad, depending on one's risk tolerance and investment horizon.

Dividends Paid for Over 25 Years?

Explain the criterion for Mercantile Bank (MBWM) and why it is important to consider

The consistency of dividend payments over a long period is an essential indicator of a company's financial health and commitment to returning value to shareholders. It demonstrates the company's ability to generate stable cash flows, maintain profitability, and adhere to a predictable dividend policy, which can be attractive to investors seeking reliable income.

Reliable Stock Repurchases Over the Past 20 Years?

Reliable stock repurchases refer to a company consistently buying back its shares, which can indicate confidence in its financial health and can also increase shareholder value by reducing the number of outstanding shares.

Over the last two decades, Mercantile Bank (MBWM) has engaged in stock repurchases sporadically in several years such as 2006, 2007, 2013, 2016, 2019, 2020, 2021, and 2022. Analyzing the number of shares outstanding during this period, we observe fluctuations. For instance, shares outstanding varied from 7.2 million in 2003 to as high as 16.6 million in 2015. While there were periods where repurchases reduced the number of shares, the overall number of shares outstanding has generally risen over time, suggesting that these repurchases were not consistent enough to indicate a long-term strategic commitment to buybacks. With an average repurchase frequency of roughly 4.75 years, the tendency indicates limited reliability in their repurchase strategy. This trend could be seen as negative, suggesting that the company may not prioritize shareholder value enhancement through buybacks consistently.