Mercantile Bank (MBWM) Could Be a Great Choice

Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.

While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.

Headquartered in Grand Rapids, Mercantile Bank (MBWM) is a Finance stock that has seen a price change of 0.09% so far this year. The holding company for Mercantile Bank of Michigan is paying out a dividend of $0.37 per share at the moment, with a dividend yield of 3.32% compared to the Banks - Midwest industry's yield of 3.19% and the S&P 500's yield of 1.53%.

Looking at dividend growth, the company's current annualized dividend of $1.48 is up 4.2% from last year. Over the last 5 years, Mercantile Bank has increased its dividend 5 times on a year-over-year basis for an average annual increase of 6.33%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Mercantile Bank's current payout ratio is 29%, meaning it paid out 29% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for MBWM for this fiscal year. The Zacks Consensus Estimate for 2025 is $5.23 per share, with earnings expected to increase 6.09% from the year ago period.

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. That said, they can take comfort from the fact that MBWM is not only an attractive dividend play, but is also a compelling investment opportunity with a Zacks Rank of #1 (Strong Buy).

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This article originally published on Zacks Investment Research (zacks.com).

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