Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and, of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
MGIC Investment (MTG) is headquartered in Milwaukee, and is in the Finance sector. The stock has seen a price change of 9.11% since the start of the year. The mortgage insurance company is paying out a dividend of $0.13 per share at the moment, with a dividend yield of 2.01% compared to the Insurance - Multi line industry's yield of 1.8% and the S&P 500's yield of 1.52%.
Looking at dividend growth, the company's current annualized dividend of $0.52 is up 6.1% from last year. Over the last 5 years, MGIC Investment has increased its dividend 4 times on a year-over-year basis for an average annual increase of 20.17%. Looking ahead, future dividend growth will be dependent on earnings growth and payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. MGIC's current payout ratio is 17%, meaning it paid out 17% of its trailing 12-month EPS as dividend.
Earnings growth looks solid for MTG for this fiscal year. The Zacks Consensus Estimate for 2025 is $2.92 per share, with earnings expected to increase 0.34% from the year ago period.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. It's important to keep in mind that not all companies provide a quarterly payout.
High-growth firms or tech start-ups, for example, rarely provide their shareholders a dividend, while larger, more established companies that have more secure profits are often seen as the best dividend options. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MTG presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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This article originally published on Zacks Investment Research (zacks.com).
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