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The Medibank Private Limited (ASX: MPL) the dividend could be attractive for some income-oriented investors.
Medibank is Australia’s largest private health insurer, giving it benefits on a large scale. This allows it to make a good profit and pay out attractive dividends.
First, let’s look at Medibank’s dividend from FY22.
Summary of dividends for financial year 22
In FY22 earnings, Medibank’s board of directors decided to declare a final dividend of 7.3 cents per share. This is a 5.8% year-over-year increase.
Overall, the business saw its group net profit after tax (NPAT) fall 10.7% to $393.9 million as net investment income fell from a $120 million gain. in FY21 to a loss of $24.8 million in FY22. However, operating profit increased 12.5% to $594.1 million in FY22. the EX22.
The full year dividend was 13.4 cents per share, an increase of 5.5% over FY21.
Medibank’s annual dividend represented a payout ratio of 84.8% of the underlying NPAT, normalizing investment market returns. This was at the upper end of its target payout ratio range of between 75% and 85%.
At the current Medibank share price, this means it has a premium dividend yield of 5.5% for fiscal year 2022.
How big is Medibank’s planned FY23 dividend?
Different analysts have different estimates of the amount of earnings and the size of Medibank’s dividend over the next two fiscal years.
For example, using CMC Markets estimates, Medibank is expected to generate earnings per share (EPS) of 18.4 cents in FY23 and 19.1 cents per share in FY24. This could result in a dividend per share of 15.2 cents per share in FY23 and 15.8 cents per share in FY24. In percentage terms, this could mean a bonus dividend yield of 6.25% in FY23 and 6.5% in FY24.
These dividend yields are quite significant and would be attractive in my opinion. This could be a useful return in this uncertain economic climate.
Let’s look at some of the other estimates.
Broker Citi, which rates Medibank as a buy, thinks Medibank could pay a premium dividend yield of 6.5% in FY23 and 6.7% in FY24.
However, there are other estimates that place future dividends at a lower level. For example, Ord Minnett projected that Medibank could pay a bonus dividend yield of 6.2% in FY23, followed by a bonus dividend yield of 6.6% in FY24.
The private health insurer could generate higher profit in FY23 thanks to growth in policyholders (the company forecast at 2.7% in FY23). There could also be productivity gains related to management fees and targeted organic or “inorganic” growth. It is also possible that his investments will generate gains again in year 23.