A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. In the past 6 years Magellan Financial Group (ASX:MFG) has returned an average of 3.00% per year to investors in the form of dividend payouts. Let’s dig deeper into whether Magellan Financial Group should have a place in your portfolio. View our latest analysis for Magellan Financial Group
Here’s how I find good dividend stocks
Whenever I am looking at a potential dividend stock investment, I always check these five metrics:
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Is their annual yield among the top 25% of dividend payers?
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Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
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Has the amount of dividend per share grown over the past?
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Can it afford to pay the current rate of dividends from its earnings?
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Will it be able to continue to payout at the current rate in the future?
How well does Magellan Financial Group fit our criteria?
Magellan Financial Group has a trailing twelve-month payout ratio of 68.36%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 74.76%, leading to a dividend yield of 4.18%. In addition to this, EPS is forecasted to fall to A$1.02 in the upcoming year. 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 Magellan Financial Group as a dividend investment. It has only been consistently paying dividends for 6 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Relative to peers, Magellan Financial Group has a yield of 2.88%, which is on the low-side for Capital Markets stocks.
Next Steps:
After digging a little deeper into Magellan Financial Group’s yield, it’s easy to see why you should be cautious investing in the company just for the dividend. 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, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three essential aspects you should further examine:
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1. Future Outlook: What are well-informed industry analysts predicting for MFG’s future growth? Take a look at our free research report of analyst consensus for MFG’s outlook.
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2. Valuation: What is MFG worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MFG is currently mispriced by the market.
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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 pass 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.