MGIC Investment Corporation (NYSE:MTG) Passed Our Checks, And It's About To Pay A US$0.06 Dividend

MGIC Investment Corporation (NYSE:MTG) is about to trade ex-dividend in the next four days. Ex-dividend means that investors that purchase the stock on or after the 16th of February will not receive this dividend, which will be paid on the 3rd of March.

MGIC Investment's next dividend payment will be US$0.06 per share, on the back of last year when the company paid a total of US$0.24 to shareholders. Based on the last year's worth of payments, MGIC Investment stock has a trailing yield of around 1.9% on the current share price of $12.51. If you buy this business for its dividend, you should have an idea of whether MGIC Investment's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

See our latest analysis for MGIC Investment

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. MGIC Investment paid out just 17% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.

Generally speaking, the lower a company's payout ratios, the more resilient its dividend usually is.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, MGIC Investment's earnings per share have been growing at 13% a year for the past five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. MGIC Investment's dividend payments are effectively flat on where they were two years ago.

Final Takeaway

Should investors buy MGIC Investment for the upcoming dividend? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. In summary, MGIC Investment appears to have some promise as a dividend stock, and we'd suggest taking a closer look at it.

So while MGIC Investment looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we've spotted 1 warning sign for MGIC Investment you should know about.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

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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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