Medibank Private (ASX:MPL) Has Announced A Dividend Of A$0.078

Medibank Private Limited (ASX:MPL) has announced that it will pay a dividend of A$0.078 per share on the 26th of March. This takes the dividend yield to 3.7%, which shareholders will be pleased with.

Check out our latest analysis for Medibank Private

Medibank Private's Projected Earnings Seem Likely To Cover Future Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, the dividend made up 85% of cash flows, but a higher proportion of net income. This indicates that the company could be more focused on returning cash to shareholders than reinvesting to grow the business.

Over the next year, EPS is forecast to expand by 40.8%. If the dividend continues along recent trends, we estimate the payout ratio will be 74%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

Medibank Private Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2015, the dividend has gone from A$0.053 total annually to A$0.166. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. So, dividends have been growing pretty quickly, and even more impressively, they haven't experienced any notable falls during this period.

Medibank Private May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Earnings has been rising at 3.0% per annum over the last five years, which admittedly is a bit slow. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Medibank Private's payments are rock solid. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think Medibank Private 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. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. As an example, we've identified 1 warning sign for Medibank Private that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield 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.