Magic Software program Enterprises (Nasdaq: MGIC) is the uncommon software program firm that has an enormous yield. Most tech firms don’t pay dividends in any respect – and of those that do, only a few have yields above 3%. Magic Software program’s present $0.327 per share semiannual dividend comes out to a yield of 6.7%.
However can the Israeli firm stick with it?
Over the past 4 quarters for which we now have knowledge (the corporate has not but launched its fourth quarter outcomes), Magic Software program generated $80 million in free money move. It paid $30.8 million in dividends over that span for a pleasant low payout ratio of 39%.
Meaning the corporate is paying out simply $0.39 in dividends for each greenback in free money move, so it could comfortably afford its dividend. (Keep in mind, I exploit free money move quite than earnings to calculate an organization’s payout ratio as a result of it’s simpler for administration to control earnings numbers.)
Magic Software program is a small cap inventory with a market cap underneath $500 million. Because of this, solely two sell-side analysts cowl the inventory, and so they haven’t revealed free money move estimates for 2024. So we’ll must make our personal assumptions.
Earnings are projected to be flat this yr, whereas income is forecast to say no by 10%. Since earnings are anticipated to be flat and administration has not offered any steering up to now, we’ll assume that free money move may even be flat.
The corporate has lowered its dividend just a few occasions in recent times. In 2022, the dividend dipped from $0.234 to $0.216 per share, and in 2020, it was practically lower in half from $0.156 to $0.08 per share.
All in all, there have been seven cuts up to now 10 years, with the others coming in 2014, 2015, 2016 and 2019. So whereas the general development has been increased, there have been durations when the dividend was lowered for a short while.
Even when Magic Software program sustains its dividend within the close to time period, I wouldn’t get too snug with it.
Dividend Security Ranking: D
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