The board of Magontec Limited (ASX:MGL) has announced that it will pay a dividend of A$0.006 per share on the 31st of October. This means the annual payment will be 3.0% of the current stock price, which is lower than the industry average.
Magontec's Earnings Easily Cover The Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Magontec's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
If the trend of the last few years continues, EPS will grow by 67.4% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio will be 11%, which is in the range that makes us comfortable with the sustainability of the dividend.
Magontec Is Still Building Its Track Record
The company hasn't been paying a dividend for very long at all, so we can't really make a judgement on how stable the dividend has been. This doesn't mean that the company can't pay a good dividend, but just that we want to wait until it can prove itself.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Magontec has grown earnings per share at 67% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
We Really Like Magontec's Dividend
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. Taking this all into consideration, this looks like it could be a good dividend opportunity.
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 instance, we've picked out 4 warning signs for Magontec that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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