MidWestOne Financial Group, Inc. (NASDAQ:MOFG) will pay a dividend of $0.2425 on the 16th of September. Based on this payment, the dividend yield will be 3.5%, which is fairly typical for the industry.

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MidWestOne Financial Group Will Pay Out More Than It Is Earning

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

MidWestOne Financial Group has a long history of paying out dividends, with its current track record at a minimum of 10 years. Past distributions unfortunately do not guarantee future ones, and MidWestOne Financial Group's last earnings report actually showed that the company went over its net earnings in its total dividend distribution. 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.

Earnings per share is forecast to rise by 128.4% over the next year. Assuming the dividend continues along recent trends, we think the future payout ratio could reach 138%, which probably can't continue putting some pressure on the balance sheet.

See our latest analysis for MidWestOne Financial Group

MidWestOne Financial Group Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2015, the dividend has gone from $0.58 total annually to $0.97. This works out to be a compound annual growth rate (CAGR) of approximately 5.3% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.

Dividend Growth Potential Is Shaky

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. Over the past five years, it looks as though MidWestOne Financial Group's EPS has declined at around 36% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

An additional note is that the company has been raising capital by issuing stock equal to 32% 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.

MidWestOne Financial Group's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 2 warning signs for MidWestOne Financial Group (of which 1 shouldn't be ignored!) you should know about. Is MidWestOne Financial Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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