The board of Mid Penn Bancorp, Inc. (NASDAQ:MPB) has announced that it will pay a dividend on the 18th of February, with investors receiving $0.20 per share. This payment means that the dividend yield will be 2.7%, which is around the industry average.

View our latest analysis for Mid Penn Bancorp

Mid Penn Bancorp's Dividend Forecasted To Be Well Covered By Earnings

Unless the payments are sustainable, the dividend yield doesn't mean too much.

Mid Penn Bancorp has established itself as a dividend paying company with over 10 years history of distributing earnings to shareholders. Past distributions do not necessarily guarantee future ones, but Mid Penn Bancorp's payout ratio of 27% is a good sign as this means that earnings decently cover dividends.

The next 3 years are set to see EPS grow by 19.3%. The future payout ratio could be 24% over that time period, according to analyst estimates, which is a good look for the future of the dividend.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of $0.40 in 2015 to the most recent total annual payment of $0.80. This works out to be a compound annual growth rate (CAGR) of approximately 7.2% a year over that time. It's good to see the dividend growing at a decent rate, but the dividend has been cut at least once in the past. Mid Penn Bancorp might have put its house in order since then, but we remain cautious.

Dividend Growth May Be Hard To Achieve

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Earnings have grown at around 3.4% a year for the past five years, which isn't massive but still better than seeing them shrink. While EPS growth is quite low, Mid Penn Bancorp has the option to increase the payout ratio to return more cash to shareholders.

An additional note is that the company has been raising capital by issuing stock equal to 17% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.

In Summary

Overall, a consistent dividend is a good thing, and we think that Mid Penn Bancorp has the ability to continue this into the future. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Mid Penn Bancorp that investors should know about before committing capital to this stock. Is Mid Penn Bancorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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