MGIC Investment's (NYSE:MTG) Upcoming Dividend Will Be Larger Than Last Year's

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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for MGIC Investment (1 can't be ignored!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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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.

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