MGIC Investment's (NYSE:MTG) Dividend Will Be Increased To $0.10

The board of MGIC Investment Corporation (NYSE:MTG) has announced that the dividend on 25th of August will be increased to $0.10, which will be 25% higher than last year's payment of $0.08 which covered the same period. This takes the annual payment to 2.3% of the current stock price, which unfortunately is below what the industry is paying.

View our latest analysis for MGIC Investment

MGIC Investment's Earnings Will Easily Cover The Distributions

The dividend yield is a little bit low, but sustainability of the payments is also an important part of evaluating an income stock.

MGIC Investment is just starting to establish itself as being able to pay dividends to shareholders, given its short 3-year history of distributing earnings. While it has a shorter history of paying out dividends, MGIC Investment's payout ratio of 15% is a great sign for current shareholders, as this means that earnings greatly cover dividends.

The next year is set to see EPS grow by 3.0%. If the dividend continues on this path, the future payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

MGIC Investment Doesn't Have A Long Payment History

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2019, the annual payment back then was $0.24, compared to the most recent full-year payment of $0.32. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. MGIC Investment has seen EPS rising for the last five years, at 15% per annum. MGIC Investment definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

MGIC Investment Looks Like A Great Dividend Stock

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for MGIC Investment (1 can't be ignored!) that you should be aware of before investing. Is MGIC Investment not quite the opportunity you were looking for? Why not check out our selection of top 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.