Stock Analysis

Should You Buy Migdal Insurance and Financial Holdings Ltd. (TLV:MGDL) For Its Dividend?

TASE:MGDL
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Is Migdal Insurance and Financial Holdings Ltd. (TLV:MGDL) a good dividend stock? How can we tell? Dividend paying companies with growing earnings can be highly rewarding in the long term. If you are hoping to live on your dividends, it's important to be more stringent with your investments than the average punter. Regular readers know we like to apply the same approach to each dividend stock, and we hope you'll find our analysis useful.

With Migdal Insurance and Financial Holdings yielding 9.0% and having paid a dividend for over 10 years, many investors likely find the company quite interesting. We'd guess that plenty of investors have purchased it for the income. Remember though, due to the recent spike in its share price, Migdal Insurance and Financial Holdings's yield will look lower, even though the market may now be factoring in an improvement in its long-term prospects. Before you buy any stock for its dividend however, you should always remember Warren Buffett's two rules: 1) Don't lose money, and 2) Remember rule #1. We'll run through some checks below to help with this.

Explore this interactive chart for our latest analysis on Migdal Insurance and Financial Holdings!

historic-dividend
TASE:MGDL Historic Dividend January 5th 2021

Payout ratios

Companies (usually) pay dividends out of their earnings. If a company is paying more than it earns, the dividend might have to be cut. Comparing dividend payments to a company's net profit after tax is a simple way of reality-checking whether a dividend is sustainable. Although it reported a loss over the past 12 months, Migdal Insurance and Financial Holdings currently pays a dividend. A medium payout ratio strikes a good balance between paying dividends, and keeping enough back to invest in the business. Plus, there is room to increase the payout ratio over time.

We update our data on Migdal Insurance and Financial Holdings every 24 hours, so you can always get our latest analysis of its financial health, here.

Dividend Volatility

Before buying a stock for its income, we want to see if the dividends have been stable in the past, and if the company has a track record of maintaining its dividend. For the purpose of this article, we only scrutinise the last decade of Migdal Insurance and Financial Holdings' dividend payments. Its dividend payments have declined on at least one occasion over the past 10 years. During the past 10-year period, the first annual payment was ₪0.2 in 2011, compared to ₪0.3 last year. Dividends per share have grown at approximately 3.7% per year over this time. Migdal Insurance and Financial Holdings' dividend payments have fluctuated, so it hasn't grown 3.7% every year, but the CAGR is a useful rule of thumb for approximating the historical growth.

We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments, we don't think this is an attractive combination.

Dividend Growth Potential

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Migdal Insurance and Financial Holdings' EPS have fallen by approximately 32% per year during the past five years. With this kind of significant decline, we always wonder what has changed in the business. Dividends are about stability, and Migdal Insurance and Financial Holdings' earnings per share, which support the dividend, have been anything but stable.

Conclusion

Dividend investors should always want to know if a) a company's dividends are affordable, b) if there is a track record of consistent payments, and c) if the dividend is capable of growing. Firstly, we like that Migdal Insurance and Financial Holdings has a low and conservative payout ratio. Earnings per share are down, and Migdal Insurance and Financial Holdings' dividend has been cut at least once in the past, which is disappointing. Migdal Insurance and Financial Holdings might not be a bad business, but it doesn't show all of the characteristics we look for in a dividend stock.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for Migdal Insurance and Financial Holdings (of which 2 can't be ignored!) you should know about.

Looking for more high-yielding dividend ideas? Try our curated list of dividend stocks with a yield above 3%.

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This article by Simply Wall St is general in nature. 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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