MGP Ingredients (NASDAQ:MGPI) Will Pay A Dividend Of US$0.12

By
Simply Wall St
Published
November 08, 2021
NasdaqGS:MGPI
Source: Shutterstock

The board of MGP Ingredients, Inc. (NASDAQ:MGPI) has announced that it will pay a dividend of US$0.12 per share on the 3rd of December. Including this payment, the dividend yield on the stock will be 0.7%, which is a modest boost for shareholders' returns.

View our latest analysis for MGP Ingredients

MGP Ingredients' Dividend Is Well Covered By Earnings

If it is predictable over a long period, even low dividend yields can be attractive. Before making this announcement, MGP Ingredients was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to expand by 1.1%. If the dividend continues on this path, the payout ratio could be 19% by next year, which we think can be pretty sustainable going forward.

historic-dividend
NasdaqGS:MGPI Historic Dividend November 9th 2021

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from US$0.05 in 2011 to the most recent annual payment of US$0.48. This works out to be a compound annual growth rate (CAGR) of approximately 25% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

The Dividend Looks Likely To Grow

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. It's encouraging to see MGP Ingredients has been growing its earnings per share at 13% a year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for MGP Ingredients' prospects of growing its dividend payments in the future.

The company has also been raising capital by issuing stock equal to 30% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

MGP Ingredients Looks Like A Great Dividend Stock

In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 3 warning signs for MGP Ingredients that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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