MainStreet Bancshares, Inc. (NASDAQ:MNSB) will pay a dividend of $0.10 on the 10th of May. This means the annual payment will be 2.5% of the current stock price, which is lower than the industry average.

View our latest analysis for MainStreet Bancshares

MainStreet Bancshares' Payment Expected To Have Solid Earnings Coverage

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable.

MainStreet Bancshares is just starting to establish itself as being able to pay dividends to shareholders, given its short 2-year history of distributing earnings. While it has a shorter history of paying out dividends, MainStreet Bancshares' payout ratio of 12% is a great sign for current shareholders, as this means that earnings greatly cover dividends.

Looking forward, earnings per share is forecast to fall by 34.2% over the next year. But if the dividend continues along recent trends, we estimate the future payout ratio could be 23%, which we would consider to be quite comfortable looking forward, with most of the company's earnings left over to grow the business in the future.

MainStreet Bancshares Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. The dividend has gone from an annual total of $0.20 in 2022 to the most recent total annual payment of $0.40. This implies that the company grew its distributions at a yearly rate of about 41% over that duration. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. It's encouraging to see that MainStreet Bancshares has been growing its earnings per share at 12% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

MainStreet Bancshares Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think MainStreet Bancshares might even raise payments in the future. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All in all, this checks a lot of the boxes we look for when choosing an income stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. To that end, MainStreet Bancshares has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is MainStreet Bancshares not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.