First Midwest Bancorp’s (NASDAQ:FMBI) has raised its quarterly common stock dividend by about 17% to 14 cents per share. The dividend will be paid on Jul 9 to shareholders on record as of Jun 28, 2019. Based on last day’s closing price of $20.28 per share, the dividend yield is 2.76%.
Prior to this hike, the company had raised its dividend by 9% to 12 cents per share in November 2018. Also, in March 2019, it approved a one-year share repurchase program, which includes authorization of up to $180 million of common stock.
Given its earnings strength and impressive growth strategies, First Midwest is expected to continue enhancing shareholder value through efficient capital deployment activities.
However, let’s see whether it is worth considering First Midwest stock based on this dividend income.
Let’s dig deeper into its financial performance and fundamentals to understand the risks and rewards.
First Midwest’s revenues have witnessed a CAGR of 14.3% over the past five years (2014-2018). Further, its projected sales growth rate of 13.5% and 6.7% for 2019, and 2020, respectively, ensures the continuation of uptrend in revenues.
Notably, the company continues to undertake opportunistic growth strategies, which have helped it expand geographical reach and diversify product offerings.
Additionally, over the last three-five years, the company witnessed earnings per share (EPS) growth of 11.2%. In fact, it is expected to deliver strong earnings performance as indicated by its projected EPS growth of 17.4% and 7.2% for 2019 and 2020, respectively. Further, its long-term (three-five years) projected EPS growth rate of 7% promises reward for shareholders.
Further, the stock looks undervalued based on its price-to-book and price-to-earnings ratios, which are below the respective industry averages. It has a Value Score of B.
Based on these factors, the stock looks worth investing in but one should consider the following downsides before taking the final decision.
First Midwest’s debt/equity ratio of 0.55 compares unfavorably with the industry average of 0.40, indicating a higher debt burden relative to the industry.
Moreover, the company’s return on equity indicates that it utilizes shareholders’ funds less efficiently than the industry. The company’s ROE of 9.33% compares unfavorably with 10.75% for the industry.
Improving economic backdrop along with lower tax rates support banks’ improving capacity to reward shareholders with dividend hikes and additional share repurchases. Several other banks including Bank OZK (NASDAQ:OZK) , Main Street Capital Corporation (NYSE:MAIN) and CIT Group (NYSE:CIT) have raised their quarterly dividends.
First Midwest’s growth prospects look encouraging based on its inorganic growth strategies. Further, the projected increase in EPS is another positive.
However, higher debt burden makes us apprehensive about its prospects. Also, the company has not been able to gain analysts’ confidence, as indicated by a stable Zacks Consensus Estimate for current-year earnings over the past seven days. Thus, the stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Shares of First Midwest have lost 10.4% over the past six months compared with 6.6% decline recorded by the industry it belongs to.
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