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MGIC Investment Corporation's (NYSE:MTG) dividend will be increasing from last year's payment of the same period to $0.10 on 25th of August. Although the dividend is now higher, the yield is only 2.8%, which is below the industry average.
See our latest analysis for MGIC Investment
MGIC Investment's Earnings Will Easily Cover The Distributions
Even a low dividend yield can be attractive if it is sustained for years on end.
Having paid out dividends for only 3 years, MGIC Investment does not have much of a history being a dividend paying company. Despite the company's shorter dividend history however, calculating for its payout ratio of 14% shows that MGIC Investment is able to comfortably pay dividends.
EPS is set to fall by 7.6% over the next 12 months. But assuming the dividend continues along recent trends, we believe the future payout ratio could be 15%, which we are pretty comfortable with and we think would be feasible on an earnings basis.
MGIC Investment Is Still Building Its Track Record
Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. The annual payment during the last 3 years was $0.24 in 2019, and the most recent fiscal year payment was $0.40. This implies that the company grew its distributions at a yearly rate of about 19% 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 could be attracted to the stock based on the quality of its payment history. It's encouraging to see that MGIC Investment has been growing its earnings per share at 19% a year over the past five years. A low payout ratio and decent growth suggests that the company is reinvesting well, and it also has plenty of room to increase the dividend over time.
We Really Like MGIC Investment's Dividend
Overall, a dividend increase is always good, and we think that MGIC Investment is a strong income stock thanks to its track record and growing earnings. The company is generating plenty of cash, and the earnings also quite easily cover the distributions. However, it is worth noting that the earnings are expected to fall over the next year, which may not change the long term outlook, but could affect the dividend payment in the next 12 months. All of these factors considered, we think this has solid potential as a dividend stock.