First Mid Bancshares, Inc. (NASDAQ:FMBH) will increase its dividend from last year's comparable payment on the 1st of September to $0.23. This takes the annual payment to 2.4% of the current stock price, which is about average for the industry.

View our latest analysis for First Mid Bancshares

First Mid Bancshares' Earnings Will Easily Cover The Distributions

While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible.

Having distributed dividends for at least 10 years, First Mid Bancshares has a long history of paying out a part of its earnings to shareholders. While past data isn't a guarantee for the future, First Mid Bancshares' latest earnings report puts its payout ratio at 24%, showing that the company can pay out its dividends comfortably.

Over the next 3 years, EPS is forecast to expand by 25.5%. The future payout ratio could be 21% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2012, the annual payment back then was $0.38, compared to the most recent full-year payment of $0.92. This means that it has been growing its distributions at 9.2% per annum over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

First Mid Bancshares Could Grow Its Dividend

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. First Mid Bancshares has seen EPS rising for the last five years, at 8.9% per annum. 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.

An additional note is that the company has been raising capital by issuing stock equal to 13% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

First Mid Bancshares Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. 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.