First Midwest Bancorp, Inc. 's FMBI board of directors approved a hike in quarterly dividend. The company announced a dividend of 12 cents, marking an increase of 9% from the prior payout. The dividend will be paid on Jan 8, 2019, to shareholders of record as of Dec 21, 2018.
Based on yesterday's closing price of $23.09 per share, the dividend yield is 2.1%.
Given its earnings strength, the company 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 risks and rewards.
First Midwest's revenues have witnessed a CAGR of 16.5% over the past four years (2014-2017). Further, its projected sales growth rates of 4.2% and 9% for 2018, and 2019, respectively, ensure the continuation of uptrend in revenues.
Additionally, over the last three-five years, the company witnessed earnings per share (EPS) growth of 8.2%. In fact, it is expected to deliver strong earnings performance as indicated by its projected EPS growth of 31.9% and 26.6% for 2018, and 2019, respectively. Further, its long-term (three-five years) projected EPS growth rate of 7% promises reward for shareholders.
Based on these two 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 0.66 compares unfavorably with the industry average of 0.45, indicating a higher debt burden relative to the industry.
Further, the stock looks overvalued based on its price-to-earnings (P/E) and PEG ratios. The company currently has a P/E (F1) ratio of 14.7 and a PEG ratio of 2.1, which are above the industry averages of 13.2 and 1.7, respectively.
Moreover, First Midwest's price performance is disappointing. Its shares have lost 3.8% over the past year against 3.2% growth recorded by the industry
it belongs to. Our Take
Just because First Midwest announced a dividend hike, it will not be wise to bet on the stock right away. Higher debt burden and a stretched valuation make us apprehensive about its prospects.
Notably, the company's Zacks Consensus Estimate for current-year earnings has also remained unchanged over the past seven days. Thus, the stock currently carries a Zacks Rank #3 (Hold). Stocks to Consider
Some better-ranked stocks from the finance space are Old Second Bancorp, Inc. OSBC
, Ares Capital Corporation ARCC
and JPMorgan Chase & Co. JPM
. Each of these carries a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here
Over the past 60 days, the Zacks Consensus Estimate for Old Second Bancorp has increased 2.6% for the current year. The company's share price has increased nearly 10.1% in the past year.
Ares Capital Corporation's shares have gained 5.4% in a year. Further, its 2018 earnings estimates have moved 2.5% upward over the past 60 days.
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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report JPMorgan Chase & Co. (JPM): Free Stock Analysis Report First Midwest Bancorp, Inc. (FMBI): Free Stock Analysis Report Old Second Bancorp, Inc. (OSBC): Free Stock Analysis Report Ares Capital Corporation (ARCC): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research