There's A Lot To Like About Magic Software Enterprises' (NASDAQ:MGIC) Upcoming US$0.33 Dividend
Magic Software Enterprises Ltd. (NASDAQ:MGIC) is about to trade ex-dividend in the next 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Magic Software Enterprises investors that purchase the stock on or after the 29th of August will not receive the dividend, which will be paid on the 13th of September.
The company's upcoming dividend is US$0.33 a share, following on from the last 12 months, when the company distributed a total of US$0.65 per share to shareholders. Last year's total dividend payments show that Magic Software Enterprises has a trailing yield of 5.5% on the current share price of $11.95. If you buy this business for its dividend, you should have an idea of whether Magic Software Enterprises's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Check out our latest analysis for Magic Software Enterprises
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Magic Software Enterprises paid out 72% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It distributed 39% of its free cash flow as dividends, a comfortable payout level for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see how much of its profit Magic Software Enterprises paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Magic Software Enterprises has grown its earnings rapidly, up 20% a year for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Magic Software Enterprises could have strong prospects for future increases to the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, 10 years ago, Magic Software Enterprises has lifted its dividend by approximately 13% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Has Magic Software Enterprises got what it takes to maintain its dividend payments? We like Magic Software Enterprises's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Magic Software Enterprises for the dividends alone, you should always be mindful of the risks involved. Case in point: We've spotted 1 warning sign for Magic Software Enterprises you should be aware of.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.
