Why MGE (MGEE) is a Great Dividend Stock Right Now
Dividends are one of the best benefits to being a shareholder, but finding a great dividend stock is no easy task. Does MGE (MGEE) have what it takes? Let's find...
Whether it's through stocks, bonds, ETFs, or other types of securities, all investors love seeing their portfolios score big returns. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
While cash flow can come from bond interest or interest from other types of investments, income investors hone in on dividends. A dividend is that coveted distribution of a company's earnings paid out to shareholders, and investors often view it by its dividend yield, a metric that measures the dividend as a percent of the current stock price. Many academic studies show that dividends account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.
MGE in Focus
Based in Madison, MGE (MGEE) is in the Utilities sector, and so far this year, shares have seen a price change of 6.48%. Currently paying a dividend of $0.39 per share, the company has a dividend yield of 2.08%. In comparison, the Utility - Electric Power industry's yield is 3.32%, while the S&P 500's yield is 1.39%.
Looking at dividend growth, the company's current annualized dividend of $1.55 is up 7.3% from last year. MGE has increased its dividend 5 times on a year-over-year basis over the last 5 years for an average annual increase of 4.74%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. MGE's current payout ratio is 51%. This means it paid out 51% of its trailing 12-month EPS as dividend.
MGEE is expecting earnings to expand this fiscal year as well. The Zacks Consensus Estimate for 2021 is $2.95 per share, which represents a year-over-year growth rate of 13.46%.
From greatly improving stock investing profits and reducing overall portfolio risk to providing tax advantages, investors like dividends for a variety of different reasons. However, not all companies offer 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. That said, they can take comfort from the fact that MGEE is not only an attractive dividend play, but also represents a compelling investment opportunity with a Zacks Rank of #2 (Buy).
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MGE Energy Inc. (MGEE): Free Stock Analysis Report
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