Insights

Is the Magellan share price a buy for its big dividend yield?

Is the investment manager’s dividend yield simply too good to ignore?
The post Is the Magellan share price a buy for its big dividend yield? appeared first on The Motley Fool Australia. –

The Magellan Financial Group Ltd (ASX: MFG) share price has been one of the worst performers in the S&P/ASX 200 Index (ASX: XJO). Over the past year, it has fallen a massive 71%. Ouch.

But, with big falls in the share price, the Magellan dividend yield has been boosted. However, it must also be said that the dividend is likely to fall in dollar terms because of the drop in Magellan’s funds under management (FUM) and the subsequent effect on profit.

But before we get to that, I must admit that I recently sold my own Magellan shares. The fall of the Magellan share price has been very disappointing, but it wasn’t the reason I sold my holding.

The key attraction about Magellan to me was its Magellan Capital Partners segment making investments into operating businesses like Guzman y Gomez (GYG). The long-term growth potential and diversification of that segment was appealing. However, Magellan recently decided it’s going to focus on its funds management business, so it sold its GYG stake. Whether Magellan shares were up or down, I would have decided to sell because the key reason why I invested was being dropped.

Magellan dividend expectations

The fund manager has committed to a high dividend payout ratio. So, at this lower Magellan share price, it represents a large dividend yield.

CMC Markets has an estimate of 105.9 cents per share for the annual dividend per share in FY23. Excluding the effect of franking credits, that would be a forward yield of 7.1%. Including franking credits, the yield would be more than 9%.

Just to reiterate, that dividend estimate would still represent a huge dividend cut compared to FY21.

Should investors buy for the income?

The difficulty is knowing what’s going to happen next.

At the moment, there is an ongoing heavy outflow of funds from Magellan’s business. The amount of FUM Magellan has is a key revenue and profit generator for the business. The loss of FUM is a major factor in why investors (including brokers) now think the business is worth less than before.

In FY24, profit is expected to decline again, leading the annual dividend to drop to just 87.1 cents according to the estimate on CMC Markets.

Will the dividend keep dropping after that? Who knows. Perhaps the leadership and investment team can turn things around. The Magellan share price can act independently of FUM movements.

However, I’m looking for businesses that are capable of growing their underlying profit, value, and dividend for shareholders.

The key thing for Magellan is to start generating some good performance in its key investment funds over longer time periods again. With relatively high fees, what will attract/retain funds if the investment fund is underperforming against its benchmark consistently?

However, I will note that the global equity strategy has delivered short-term outperformance against its benchmark, as at 30 June 2022, over the prior month and three months.

But, I think there are other ASX dividend shares that have the capability of producing more attractive returns and growing the dividend.

The post Is the Magellan share price a buy for its big dividend yield? appeared first on The Motley Fool Australia.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.* Scott just revealed what he believes could be the “five best ASX stocks” for investors to buy right now. These stocks are trading at near dirt-cheap prices and Scott thinks they could be great buys right now

See The 5 Stocks
*Returns as of July 7 2022

setButtonColorDefaults(“#0095C8”, ‘background’, ‘#5FA85D’);
setButtonColorDefaults(“#0095C8”, ‘border-color’, ‘#43A24A’);
setButtonColorDefaults(“#fff”, ‘color’, ‘#fff’);
})()

More reading

Morgan Stanley forecasts Magellan share price will sink 35%
Why has the Magellan share price leapt 21% in a week?
Here are the top 10 ASX shares today
What market prediction sent the Magellan share price spiking 9% today?
‘Important period’: Here’s why the Magellan share price is shedding today

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

  • This field is for validation purposes and should be left unchanged.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Rebate Rewards

Level 2 Rebate

Deposit $2,000 and get $200 Rebate
$ 200 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $2,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $200 Rebate
Popular

Level 1 Rebate

Deposit $1,000 and get $100 Rebate
$ 100 Rebate
  • 3 Simple Steps
  • 1. Register Using The Link Below (Promo-Code: WEBREBATE)
  • 2. Deposit $1,000 and place one trade at any non-Austalian market within 30 calendar days
  • 3. Receive Your $100 Rebate

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex Securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here To Get Started
EASY QUALIFICATION & LOW ENTRY
NEW CLIENT REBATE OFFER
EARN UP TO $200 CASH REBATE
Act Fast - Promotion Ends In
Click Here For More Info