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Are You Looking for a High-Growth Dividend Stock? MGE (MGEE) Could Be a Great Choice

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All investors love getting big returns from their portfolio, whether it's through stocks, bonds, ETFs, or other types of securities. 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

MGE (MGEE - Free Report) is headquartered in Madison, and is in the Utilities sector. The stock has seen a price change of -12.95% since the start of the year. The public utility holding company is paying out a dividend of $0.39 per share at the moment, with a dividend yield of 2.16% compared to the Utility - Electric Power industry's yield of 3.15% and the S&P 500's yield of 1.48%.

Looking at dividend growth, the company's current annualized dividend of $1.55 is up 2.3% from last year. Over the last 5 years, MGE has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.81%. Any future dividend growth will depend on both earnings growth and the company's payout ratio; a payout ratio is the proportion of a firm'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.

Looking at this fiscal year, MGEE expects solid earnings growth. The Zacks Consensus Estimate for 2022 is $3.10 per share, which represents a year-over-year growth rate of 6.16%.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. It's important to keep in mind that not all companies provide a quarterly payout.

Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. During periods of rising interest rates, income investors must be mindful that high-yielding stocks tend to struggle. With that in mind, MGEE 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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