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The board of MidWestOne Financial Group, Inc. (NASDAQ:MOFG) has announced that it will pay a dividend on the 16th of December, with investors receiving $0.2425 per share. This means the dividend yield will be fairly typical at 3.3%.
Check out our latest analysis for MidWestOne Financial Group
MidWestOne Financial Group's Dividend Forecasted To Be Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time.
Having distributed dividends for at least 10 years, MidWestOne Financial Group has a long history of paying out a part of its earnings to shareholders. Despite this history however, the company's latest earnings report actually shows that it didn't have enough earnings to cover its dividends. This is very worrying for shareholders, as this shows that MidWestOne Financial Group will not be able to sustain its dividend at its current rate.
Analysts expect a massive rise in earnings per share in the next 3 years. They also estimate that the future payout ratio will be 31% in the same time horizon, so there isn't too much pressure on the dividend.
MidWestOne Financial Group Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2014, the annual payment back then was $0.58, compared to the most recent full-year payment of $0.97. This means that it has been growing its distributions at 5.3% per annum over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.
Dividend Growth Potential Is Shaky
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. MidWestOne Financial Group's earnings per share has shrunk at 12% a year over the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
We should note that MidWestOne Financial Group has issued stock equal to 32% 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.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think MidWestOne Financial Group is a great stock to add to your portfolio if income is your focus.