MGE Energy's (NASDAQ:MGEE) Shareholders Will Receive A Bigger Dividend Than Last Year

MGE Energy, Inc. (NASDAQ:MGEE) will increase its dividend on the 15th of December to US$0.39. This takes the annual payment to 2.0% of the current stock price, which unfortunately is below what the industry is paying.

Check out our latest analysis for MGE Energy

MGE Energy's Dividend Is Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, MGE Energy was earning enough to cover the dividend, but it wasn't generating any free cash flows. No cash flows could definitely make returning cash to shareholders difficult, or at least mean the balance sheet will come under pressure.

EPS is set to fall by 0.09% over the next 12 months. If the dividend continues along the path it has been on recently, we estimate the payout ratio could be 53%, which is comfortable for the company to continue in the future.

MGE Energy Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from US$1.00 in 2011 to the most recent annual payment of US$1.55. This implies that the company grew its distributions at a yearly rate of about 4.5% over that duration. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

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 impressed us by growing EPS at 7.5% per year over the past five years. While on an earnings basis, this company looks appealing as an income stock, the cash payout ratio still makes us cautious.

In Summary

Overall, we always like to see the dividend being raised, but we don't think MGE Energy will make a great income stock. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for MGE Energy that investors need to be conscious of moving forward. We have also put together a list of global stocks with a solid dividend.

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.

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