Maximus, Inc.'s (NYSE:MMS) investors are due to receive a payment of $0.28 per share on 28th of February. Based on this payment, the dividend yield will be 1.5%, which is fairly typical for the industry.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Maximus' stock price has increased by 31% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Maximus' Payment Has Solid Earnings Coverage
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. However, prior to this announcement, Maximus' dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
EPS is set to fall by 1.9% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 45%, which we are pretty comfortable with and we think is feasible on an earnings basis.
Maximus Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $0.18 in 2013 to the most recent total annual payment of $1.12. This means that it has been growing its distributions at 20% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend's Growth Prospects Are Limited
The company's investors will be pleased to have been receiving dividend income for some time. Although it's important to note that Maximus' earnings per share has basically not grown from where it was five years ago, which could erode the purchasing power of the dividend over time. While growth may be thin on the ground, Maximus could always pay out a higher proportion of earnings to increase shareholder returns.
We Really Like Maximus' 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 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 in all, this checks a lot of the boxes we look for when choosing an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for Maximus you should be aware of, and 1 of them is a bit unpleasant. Is Maximus not quite the opportunity you were looking for? Why not check out our selection of top 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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