The Medibank Private Limited (ASX: MPL) dividend might be attractive for some investors focused on investment income.
Medibank is the largest private health insurer in Australia, giving it good scale benefits. This enables it to make a good profit and pay attractive dividends.
Firstly, let's look at Medibank's dividend from FY22.
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FY22 dividend recap
In the FY22 result, Medibank's board decided to declare a final dividend of 7.3 cents per share. This was an increase of 5.8% year over year.
Overall, the business saw group net profit after tax (NPAT) fall 10.7% to $393.9 million due to net investment income falling from a $120 million gain in FY21 to a $24.8 million loss in FY22. However, the operating profit rose 12.5% to $594.1 million in FY22.
The full-year dividend was 13.4 cents per share, representing an increase of 5.5% compared to FY21.
Medibank's full-year dividend represented a payout ratio of 84.8% of underlying NPAT, normalising for investment market returns. This was at the top end of its target payout ratio range of between 75% to 85%.
At the current Medibank share price, this means it has an FY22 grossed-up dividend yield of 5.5%.
How big is the Medibank dividend expected to be in FY23?
Different analysts have different estimates for how much profit and how big the dividend may be from Medibank in the next couple of financial years.
For example, using the estimates on CMC Markets, 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 translate into 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 grossed-up dividend yield of 6.25% in FY23 and 6.5% in FY24.
Those dividend yields are pretty sizeable and would be attractive in my opinion. It could be a useful yield in this uncertain economic climate.
Let's have a look at a couple of the other estimates.
The broker Citi, which rates Medibank as a buy, thinks that Medibank could pay a grossed-up 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 has projected that Medibank could pay a grossed-up dividend yield of 6.2% in FY23 followed by a grossed-up dividend yield of 6.6% in FY24.
Foolish takeaway
The private health insurer could generate a higher profit in FY23 with policyholder growth (projected by the company to be 2.7% in FY23). There could also be productivity improvements relating to management expenses and targeted organic or 'inorganic' growth. It's also possible that its investments could deliver gains again in FY23.
