Medibank Private's (ASX:MPL) Dividend Will Be Increased To AU$0.069

Medibank Private Limited's (ASX:MPL) dividend will be increasing to AU$0.069 on 30th of September. The announced payment will take the dividend yield to 3.6%, which is in line with the average for the industry.

View our latest analysis for Medibank Private

Medibank Private's Earnings Easily Cover the Distributions

Unless the payments are sustainable, the dividend yield doesn't mean too much. Before making this announcement, Medibank Private's was paying out quite a large proportion of earnings and 80% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

Looking forward, earnings per share is forecast to fall by 3.1% over the next year. However, if the dividend continues along recent trends, we estimate the payout ratio could reach 91%, meaning that most of the company's earnings are being paid out to shareholders.

Medibank Private Doesn't Have A Long Payment History

The dividend's track record has been pretty solid, but with only 6 years of history we want to see a few more years of history before making any solid conclusions. Since 2015, the first annual payment was AU$0.053, compared to the most recent full-year payment of AU$0.13. This means that it has been growing its distributions at 16% 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 could be attracted to the stock based on the quality of its payment history. However, Medibank Private's EPS was effectively flat over the past five years, which could stop the company from paying more every year. Slow growth and a high payout ratio could mean that Medibank Private has maxed out the amount that it has been able to pay to shareholders. When the rate of return on reinvestment opportunities falls below a certain minimum level, companies often elect to pay a larger dividend instead. This is why many mature companies often have larger dividend yields.

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. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Medibank Private that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.

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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.
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