MainStreet Bancshares, Inc. (NASDAQ:MNSB) has announced that it will pay a dividend of $0.10 per share on the 20th of May. This means the annual payment will be 2.1% of the current stock price, which is lower than the industry average.

Our free stock report includes 1 warning sign investors should be aware of before investing in MainStreet Bancshares. Read for free now.

MainStreet Bancshares Will Pay Out More Than It Is Earning

If it is predictable over a long period, even low dividend yields can be attractive.

MainStreet Bancshares is just starting to establish itself as being able to pay dividends to shareholders, given its short 3-year history of distributing earnings. But while MainStreet Bancshares was able to sustain its dividend for a decent period of time, its most recent earnings report shows that the company didn't have enough earnings to cover their dividends. This is an alarming sign that could mean that MainStreet Bancshares' dividend may no longer be sustainable for longer.

Over the next year, EPS is forecast to expand by 112.4%. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.

Check out our latest analysis for MainStreet Bancshares

MainStreet Bancshares Doesn't Have A Long Payment History

The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2022, the dividend has gone from $0.20 total annually to $0.40. This works out to be a compound annual growth rate (CAGR) of approximately 26% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. MainStreet Bancshares' earnings per share has shrunk at 10% a year over the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

We're Not Big Fans Of MainStreet Bancshares' Dividend

Overall, while some might be pleased that the dividend wasn't cut, we think this may help MainStreet Bancshares make more consistent payments in the future. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 1 warning sign for MainStreet Bancshares that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high yield 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.