The board of Mid-Southern Bancorp, Inc. (NASDAQ:MSVB) has announced that it will pay a dividend of US$0.03 per share on the 27th of August. This means the annual payment will be 0.7% of the current stock price, which is lower than the industry average.

View our latest analysis for Mid-Southern Bancorp

Mid-Southern Bancorp's Payment Has Solid Earnings Coverage

Even a low dividend yield can be attractive if it is sustained for years on end. However, Mid-Southern Bancorp's earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

Unless the company can turn things around, EPS could fall by 1.0% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could be 27%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

Mid-Southern Bancorp's Dividend Has Lacked Consistency

It's comforting to see that Mid-Southern Bancorp has been paying a dividend for a number of years now, however it has been cut at least once in that time. This makes us cautious about the consistency of the dividend over a full economic cycle. Since 2014, the first annual payment was US$0.22, compared to the most recent full-year payment of US$0.12. The dividend has shrunk at around 8.5% a year during that period. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Mid-Southern Bancorp May Find It Hard To Grow The Dividend

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Unfortunately, Mid-Southern Bancorp's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year.

Our Thoughts On Mid-Southern Bancorp's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Mid-Southern Bancorp that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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