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MainStreet Bancshares, Inc. (NASDAQ:MNSB) is about to trade ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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. This means that investors who purchase MainStreet Bancshares' shares on or after the 3rd of August will not receive the dividend, which will be paid on the 11th of August.
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 has a trailing yield of 1.7% on the current stock price of $24.11. If you buy this business for its dividend, you should have an idea of whether MainStreet Bancshares's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for MainStreet Bancshares
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. MainStreet Bancshares has a low and conservative payout ratio of just 5.3% 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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see MainStreet Bancshares has grown its earnings rapidly, up 37% a year for the past five years.
Unfortunately MainStreet Bancshares has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
The Bottom Line
From a dividend perspective, should investors buy or avoid MainStreet Bancshares? Companies like MainStreet Bancshares that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. MainStreet Bancshares ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.