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The board of Mid Penn Bancorp, Inc. (NASDAQ:MPB) has announced that it will pay a dividend of US$0.20 per share on the 23rd of May. This payment means that the dividend yield will be 3.1%, which is around the industry average.
Check out our latest analysis for Mid Penn Bancorp
Mid Penn Bancorp's Earnings Easily Cover the Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Mid Penn Bancorp was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 23.0%. Assuming the dividend continues along recent trends, we think the payout ratio could be 36% by next year, which is in a pretty sustainable range.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from US$0.20 to US$0.80. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.
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. Although it's important to note that Mid Penn Bancorp's earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.
The company has also been raising capital by issuing stock equal to 45% 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.
Our Thoughts On Mid Penn Bancorp's Dividend
In summary, we are pleased with the dividend remaining consistent, and we think there is a good chance of this continuing in the future. The payout ratio looks good, but unfortunately the company's dividend track record isn't stellar. This looks like it could be a good dividend stock going forward, but we would note that the payout ratio has been at higher levels in the past so it could happen again.