Should You Buy Magyar Bancorp, Inc. (NASDAQ:MGYR) For Its Upcoming Dividend?
Readers hoping to buy Magyar Bancorp, Inc. (NASDAQ:MGYR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Accordingly, Magyar Bancorp investors that purchase the stock on or after the 2nd of August will not receive the dividend, which will be paid on the 17th of August.
The company's next dividend payment will be US$0.03 per share, on the back of last year when the company paid a total of US$0.20 to shareholders. Based on the last year's worth of payments, Magyar Bancorp stock has a trailing yield of around 1.8% on the current share price of $11.1928. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Magyar Bancorp can afford its dividend, and if the dividend could grow.
View our latest analysis for Magyar Bancorp
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Magyar Bancorp paid out just 9.8% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances.
When a company paid out less in dividends than it earned in profit, this generally suggests its dividend is affordable. The lower the % of its profit that it pays out, the greater the margin of safety for the dividend if the business enters a downturn.
Click here to see how much of its profit Magyar Bancorp paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Magyar Bancorp's earnings have been skyrocketing, up 43% per annum for the past five years.
Unfortunately Magyar Bancorp has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
To Sum It Up
Has Magyar Bancorp got what it takes to maintain its dividend payments? Companies like Magyar Bancorp that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. Magyar Bancorp ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Every company has risks, and we've spotted 2 warning signs for Magyar Bancorp you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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.
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