Why McGrath (MGRC) is a Top Dividend Stock for Your Portfolio

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

McGrath in Focus

McGrath (MGRC) is headquartered in Livermore, and is in the Finance sector. The stock has seen a price change of 1.99% since the start of the year. Currently paying a dividend of $0.46 per share, the company has a dividend yield of 2.22%. In comparison, the Financial - Leasing Companies industry's yield is 1.12%, while the S&P 500's yield is 1.54%.

In terms of dividend growth, the company's current annualized dividend of $1.82 is up 5.5% from last year. In the past five-year period, McGrath has increased its dividend 5 times on a year-over-year basis for an average annual increase of 12.68%. 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. McGrath's current payout ratio is 47%, meaning it paid out 47% 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 $4.06 per share, with earnings expected to increase 10.93% 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. But, not every company offers 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, MGRC 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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