Why You Might Be Interested In Magnolia Oil & Gas Corporation (NYSE:MGY) For Its Upcoming Dividend
It looks like Magnolia Oil & Gas Corporation (NYSE:MGY) is about to go ex-dividend in the next 4 days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the 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. This means that investors who purchase Magnolia Oil & Gas' shares on or after the 9th of August will not receive the dividend, which will be paid on the 1st of September.
The company's next dividend payment will be US$0.12 per share. Last year, in total, the company distributed US$0.46 to shareholders. Last year's total dividend payments show that Magnolia Oil & Gas has a trailing yield of 2.0% on the current share price of $23.06. If you buy this business for its dividend, you should have an idea of whether Magnolia Oil & Gas's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Magnolia Oil & Gas
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Magnolia Oil & Gas is paying out just 13% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 13% of its cash flow last year.
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 the company's payout ratio, plus analyst estimates of its future dividends.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Magnolia Oil & Gas's earnings have been skyrocketing, up 166% per annum for the past five years. Magnolia Oil & Gas looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Magnolia Oil & Gas has delivered an average of 70% per year annual increase in its dividend, based on the past two years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Final Takeaway
Should investors buy Magnolia Oil & Gas for the upcoming dividend? We love that Magnolia Oil & Gas is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Magnolia Oil & Gas looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
While it's tempting to invest in Magnolia Oil & Gas for the dividends alone, you should always be mindful of the risks involved. For example, Magnolia Oil & Gas has 2 warning signs (and 1 which is concerning) we think 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.
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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.
