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MainStreet Bancshares, Inc. (NASDAQ:MNSB) stock is about to trade ex-dividend in four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase MainStreet Bancshares' shares on or after the 12th of November, you won't be eligible to receive the dividend, when it is paid on the 19th of November.
The company's next dividend payment will be US$0.10 per share, on the back of last year when the company paid a total of US$0.40 to shareholders. Based on the last year's worth of payments, MainStreet Bancshares stock has a trailing yield of around 2.2% on the current share price of US$18.20. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether MainStreet Bancshares can afford its dividend, and if the dividend could grow.
View our latest analysis for MainStreet Bancshares
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. MainStreet Bancshares has a low and conservative payout ratio of just 8.3% of its income after tax.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. So we're not too excited that MainStreet Bancshares's earnings are down 2.1% a year over the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. MainStreet Bancshares has delivered an average of 26% per year annual increase in its dividend, based on the past three years of dividend payments.
Final Takeaway
Has MainStreet Bancshares got what it takes to maintain its dividend payments? Earnings per share have shrunk noticeably in recent years, although we like that the company has a low payout ratio. This could suggest a cut to the dividend may not be a major risk in the near future. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're on the fence about its dividend prospects.