Mid Penn Bancorp, Inc. (NASDAQ:MPB) will pay a dividend of $0.20 on the 22nd of August. This payment means that the dividend yield will be 2.8%, which is around the industry average.

View our latest analysis for Mid Penn Bancorp

Mid Penn Bancorp's 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.

Mid Penn Bancorp has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions do not necessarily guarantee future ones, but Mid Penn Bancorp's payout ratio of 34% is a good sign as this means that earnings decently cover dividends.

Looking forward, earnings per share is forecast to rise by 24.9% over the next year. If the dividend continues on this path, the future payout ratio could be 33% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was $0.20 in 2012, and the most recent fiscal year payment was $0.80. This works out to be a compound annual growth rate (CAGR) of approximately 15% a year over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

Dividend Growth May Be Hard To Achieve

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. Mid Penn Bancorp hasn't seen much change in its earnings per share over the last five years. While EPS growth is quite low, Mid Penn Bancorp has the option to increase the payout ratio to return more cash to shareholders.

We should note that Mid Penn Bancorp has issued stock equal to 39% of shares outstanding. 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.

Our Thoughts On Mid Penn Bancorp's Dividend

Overall, we think Mid Penn Bancorp is a solid choice as a dividend stock, even though the dividend wasn't raised this year. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The payment isn't stellar, but it could make a decent addition to a dividend portfolio.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 3 warning signs for Mid Penn Bancorp that investors should take into consideration. Is Mid Penn Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.