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 September to $0.4275, which is 4.9% higher than last year's payment from the same period of $0.408. Despite this raise, the dividend yield of 2.2% is only a modest boost to shareholder returns.
View our latest analysis for MGE Energy
MGE Energy's Dividend Is Well Covered By Earnings
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 payment, MGE Energy's earnings were much higher than the dividend, but it wasn't converting those earnings into cash flow. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to expand by 16.7%. If the dividend continues on this path, the payout ratio could be 47% by next year, which we think can be pretty sustainable going forward.
MGE Energy Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $1.05 in 2013 to the most recent total annual payment of $1.63. 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.
Dividend Growth May Be Hard To Achieve
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. MGE Energy hasn't seen much change in its earnings per share over the last five years. The company has been growing at a pretty soft 1.7% per annum, and is paying out quite a lot of its earnings to shareholders. This could mean the dividend doesn't have the growth potential we look for going into the future.
Our Thoughts On MGE Energy's Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While MGE Energy is earning enough to cover the payments, the cash flows are lacking. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for MGE Energy that investors need to be conscious of moving forward. Is MGE Energy not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
