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This is Why McGrath (MGRC) is a Great Dividend Stock

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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 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 account for significant portions of long-term returns, with dividend contributions exceeding one-third of total returns in many cases.

McGrath in Focus

McGrath (MGRC - Free Report) is headquartered in Livermore, and is in the Finance sector. The stock has seen a price change of 5.76% since the start of the year. The business-to-business rental company is paying out a dividend of $0.46 per share at the moment, with a dividend yield of 2.14% compared to the Financial - Leasing Companies industry's yield of 1.05% and the S&P 500's yield of 1.5%.

Taking a look at the company's dividend growth, its current annualized dividend of $1.82 is up 5.5% from last year. Over the last 5 years, McGrath has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.68%. 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. McGrath's current payout ratio is 48%, meaning it paid out 48% of its trailing 12-month EPS as dividend.

Earnings growth looks solid for MGRC for this fiscal year. The Zacks Consensus Estimate for 2022 is $3.97 per share, with earnings expected to increase 8.47% from the year ago period.

Bottom Line

Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. 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 must be conscious of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, MGRC is a compelling investment opportunity. Not only is it a strong dividend play, but the stock currently sits at a Zacks Rank of 3 (Hold).


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