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MGE Energy, Inc.'s (NASDAQ:MGEE) dividend will be increasing to US$0.39 on 15th of December. This takes the annual payment to 2.0% of the current stock price, which unfortunately is below what the industry is paying.
MGE Energy's Earnings Easily Cover the Distributions
The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock. Prior to this announcement, MGE Energy's earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
Looking forward, earnings per share is forecast to rise by 2.4% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which is in the range that makes us comfortable with the sustainability of the dividend.
MGE Energy Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2011, the first annual payment was US$1.00, compared to the most recent full-year payment of US$1.55. This works out to be a compound annual growth rate (CAGR) of approximately 4.5% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.
We Could See MGE Energy's Dividend Growing
Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see MGE Energy has been growing its earnings per share at 6.8% a year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.
Our Thoughts On MGE Energy's Dividend
Overall, we always like to see the dividend being raised, but we don't think MGE Energy will make a great income stock. While MGE Energy is earning enough to cover the payments, the cash flows are lacking. We don't think MGE Energy is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for MGE Energy that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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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