MGE Energy (NASDAQ:MGEE) Is Paying Out A Larger Dividend Than Last Year

MGE Energy, Inc.'s (NASDAQ:MGEE) periodic dividend will be increasing on the 15th of September to $0.4075, with investors receiving 5.2% more than last year's $0.388. Even though the dividend went up, the yield is still quite low at only 1.8%.

See our latest analysis for MGE Energy

MGE Energy's Earnings Easily Cover The Distributions

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Based on the last dividend, MGE Energy is earning enough to cover the payment, but then it makes up 209% of cash flows. This signals that the company is more focused on returning cash flow to shareholders, but it could mean that the dividend is exposed to cuts in the future.

Looking forward, earnings per share is forecast to rise by 14.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 50%, which is in the range that makes us comfortable with the sustainability of the dividend.

MGE Energy Has A Solid Track Record

The company has an extended history of paying stable dividends. Since 2012, the dividend has gone from $1.02 total annually to $1.55. This implies that the company grew its distributions at a yearly rate of about 4.3% over that duration. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

We Could See MGE Energy's Dividend Growing

Investors could be attracted to the stock based on the quality of its payment history. MGE Energy has seen EPS rising for the last five years, at 5.3% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On MGE Energy's Dividend

Overall, we always like to see the dividend being raised, but we don't think MGE Energy will make a great income stock. While MGE Energy is earning enough to cover the payments, the cash flows are lacking. We don't think MGE Energy is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 2 warning signs for MGE Energy that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.