Medibank Private (ASX:MPL) Has Announced That It Will Be Increasing Its Dividend To A$0.073

Medibank Private Limited (ASX:MPL) has announced that it will be increasing its periodic dividend on the 29th of September to A$0.073, which will be 5.8% higher than last year's comparable payment amount of A$0.069. Based on this payment, the dividend yield for the company will be 3.7%, which is fairly typical for the industry.

View our latest analysis for Medibank Private

Medibank Private's Dividend Is Well Covered By Earnings

We aren't too impressed by dividend yields unless they can be sustained over time. The last payment made up 94% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.

The next year is set to see EPS grow by 35.9%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 71% which would be quite comfortable going to take the dividend forward.

Medibank Private Doesn't Have A Long Payment History

Medibank Private's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2015, the annual payment back then was A$0.053, compared to the most recent full-year payment of A$0.134. This means that it has been growing its distributions at 14% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. In the last five years, Medibank Private's earnings per share has shrunk at approximately 2.6% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Our Thoughts On Medibank Private's Dividend

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 unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Medibank Private that investors should take into consideration. 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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