Should Mount Gibson Iron Limited (ASX:MGX) Be Part Of Your Portfolio?

Dividends play an important role in compounding returns in the long run and end up forming a sizeable part of investment returns. Mount Gibson Iron Limited (ASX:MGX) has returned to shareholders over the past 7 years, an average dividend yield of 5.00% annually. Does Mount Gibson Iron tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis.

Check out our latest analysis for Mount Gibson Iron

5 checks you should use to assess a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is it the top 25% annual dividend yield payer?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share amount increased over the past?

• Does earnings amply cover its dividend payments?

• Based on future earnings growth, will it be able to continue to payout dividend at the current rate?

ASX:MGX Historical Dividend Yield August 12th 18

Does Mount Gibson Iron pass our checks?

Mount Gibson Iron has a trailing twelve-month payout ratio of 25.79%, which means that the dividend is covered by earnings. Going forward, analysts expect MGX’s payout to increase to 34.89% of its earnings, which leads to a dividend yield of 2.25%.

Reliablity is an important factor for dividend stocks, particularly for income investors who want a strong track record of payment and a positive outlook for future payout. The reality is that it is too early to consider Mount Gibson Iron as a dividend investment. It has only been consistently paying dividends for 7 years, however, standard practice for reliable payers is to look for a 10-year minimum track record.

Relative to peers, Mount Gibson Iron generates a yield of 4.49%, which is high for Metals and Mining stocks but still below the market’s top dividend payers.

Next Steps:

If Mount Gibson Iron is in your portfolio for cash-generating reasons, there may be better alternatives out there. But if you are not exclusively a dividend investor, the stock could still be an interesting investment opportunity. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. I’ve put together three essential factors you should further examine:

1. Future Outlook: What are well-informed industry analysts predicting for MGX’s future growth? Take a look at our free research report of analyst consensus for MGX’s outlook.

2. Historical Performance: What has MGX’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

3. Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.