McGrath RentCorp's (NASDAQ:MGRC) Dividend Will Be Increased To US$0.46

McGrath RentCorp (NASDAQ:MGRC) will increase its dividend on the 29th of April to US$0.46. Based on the announced payment, the dividend yield for the company will be 2.0%, which is fairly typical for the industry.

Check out our latest analysis for McGrath RentCorp

McGrath RentCorp's Payment Has Solid Earnings Coverage

We aren't too impressed by dividend yields unless they can be sustained over time. Based on the last payment, McGrath RentCorp was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 13.3%. Assuming the dividend continues along recent trends, we think the payout ratio could be 46% by next year, which is in a pretty sustainable range.

McGrath RentCorp Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from US$0.92 in 2012 to the most recent annual payment of US$1.82. This implies that the company grew its distributions at a yearly rate of about 7.1% over that duration. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Looks Likely To Grow

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that McGrath RentCorp has grown earnings per share at 18% per year over the past five years. Earnings are on the uptrend, and it is only paying a small portion of those earnings to shareholders.

McGrath RentCorp Looks Like A Great Dividend Stock

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. 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.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for McGrath RentCorp that investors need to be conscious of moving forward. Is McGrath RentCorp not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.