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Medibank is the largest private health insurer in Australia, which gives it great advantages. This allows it to generate good profits and pay attractive dividends.
First, let’s look at Medibank’s FY22 dividend.
Summary of FY22 dividends
In the village The result of the 22nd financial year, the Medibank board decided to declare a final dividend of 7.3 cents per share. This was an increase of 5.8% year-on-year.
Overall, the business saw the group net profit after tax (NPAT) a 10.7% drop to $393.9 million as net investment income fell from a profit of $120 million in FY21 to a loss of $24.8 million in FY22. However, operating income rose 12.5% to $594.1 million in FY22.
Full-year dividends were 13.4 cents per share, up 5.5% from FY21.
Medibank’s full-year dividend represents a payout ratio of 84.8% of underlying NPAT, which is normalized for investment market returns. This was at the upper end of the target payout ratio range of 75% to 85%.
At Medibank’s current share price, this means it has a total of FY22 dividend yield 5.5%.
What is Medibank’s expected FY23 dividend?
Different analysts have made different estimates for Medibank’s earnings and dividends over the next couple of financial years.
For example, using CMC Markets estimates, Medibank is expected to generate earnings per share (EPS) 18.4 cents in FY23 and 19.1 cents per share in FY24. This could lead to dividends per share of 15.2 cents per share in FY23 and 15.8 cents per share in FY24. In percentage terms, this could translate to a cumulative dividend yield of 6.25% in FY23 and 6.5% in FY24.
These dividend yields are quite substantial and would be attractive in my opinion. This could be a profitable crop in this uncertain economic climate.
Let’s look at a couple of other estimates.
Broker Citi, which rates Medibank a buy, believes Medibank could pay a gross dividend yield of 6.5% in FY23 and 6.7% in FY24.
However, there are other estimates that put future dividends at a lower level. For example, Ord Minnett predicted that Medibank could pay 6.2% in dividend income in FY23 and 6.6% in FY24.
The private health insurance company could see higher profits in FY23 with policyholder growth (the company is forecast to grow 2.7% in FY23). There may also be performance improvements related to management costs and targeted organic or “inorganic” growth. It is also possible that his investments will turn a profit again in FY23.