Magic Software Enterprises (NASDAQ:MGIC) Is Paying Out A Larger Dividend Than Last Year
The board of Magic Software Enterprises Ltd. (NASDAQ:MGIC) has announced that it will be increasing its dividend by 13% on the 13th of September to $0.327, up from last year's comparable payment of $0.29. This takes the dividend yield to 4.9%, which shareholders will be pleased with.
View our latest analysis for Magic Software Enterprises
Magic Software Enterprises' Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment made up 72% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
Looking forward, earnings per share is forecast to rise by 8.4% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could be 74% by next year, which is in a pretty sustainable range.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2013, the annual payment back then was $0.20, compared to the most recent full-year payment of $0.59. This implies that the company grew its distributions at a yearly rate of about 11% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. It's encouraging to see that Magic Software Enterprises has been growing its earnings per share at 17% a year over the past five years. EPS has been growing at a reasonable rate, although with most of the profits being paid out to shareholders, growth prospects could be more limited in the future.
Magic Software Enterprises Looks Like A Great Dividend Stock
Overall, a dividend increase is always good, and we think that Magic Software Enterprises is a strong income stock thanks to its track record and growing earnings. Earnings are easily covering distributions, and the company is generating plenty of cash. Taking this all into consideration, this looks like it could be a good dividend opportunity.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Taking the debate a bit further, we've identified 1 warning sign for Magic Software Enterprises that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.
