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Medibank Private Limited's (ASX:MPL) dividend will be increasing from last year's payment of the same period to A$0.083 on 5th of October. This takes the dividend yield to 4.1%, which shareholders will be pleased with.
See our latest analysis for Medibank Private
Medibank Private's Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Medibank Private was paying out quite a large proportion of both earnings and cash flow, with the dividend being 290% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.
EPS is set to grow by 13.4% over the next year. If recent patterns in the dividend continues, the payout ratio in 12 months could be 76% which is a bit high but can definitely be sustainable.
Medibank Private Is Still Building Its Track Record
The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. Since 2015, the dividend has gone from A$0.053 total annually to A$0.146. This means that it has been growing its distributions at 14% per annum over that time. 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.
Medibank Private May Find It Hard To Grow The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. However, Medibank Private has only grown its earnings per share at 3.8% per annum over the past five years. Medibank Private's earnings per share has barely grown, which is not ideal - perhaps this is why the company pays out the majority of its earnings to shareholders. This isn't the end of the world, but for investors looking for strong dividend growth they may want to look elsewhere.
Medibank Private's Dividend Doesn't Look Sustainable
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. The payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular 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 Medibank Private that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.