If any ASX stock, but particularly an ASX financial stock, trades on a dividend yield of over 5%, it's enough to make income investors sit up and pay attention.
That's exactly what ASX financial stock Magellan Financial Group Ltd (ASX: MFG) seems to be offering today.
At the time of writing, shares of this fund manager are trading at $10.23 each. At this share price, the ASX financial stock is trading on a trailing yield of 5.11%.
That yield comes from Magellan's two most recent dividend payments. The first of those was the interim dividend of 26.4 cents per share that investors bagged in March. The second is the final dividend of 25.9 cents per share that will, incidentally, be paid out today.
The final dividend will come with full franking credits attached, while the March interim dividend was partially franked to 85%.
Today, investors will also receive a special dividend in addition to that final payment. This special dividend will be worth another 21 cents per share, fully franked. If we include that payment in Magellan's dividend yield, it spikes up to 7.17%.
But is this divided for real, or just another trap for the unwary income investor to avoid?
Is this ASX financial stock's 5.1% dividend yield too good to be true?
Well, no. As we've just touched on, this yield comes from the two dividend payments (out of three) that Magellan investors will receive this year. So there is nothing incorrect about this sizeable dividend yield. However, there is one important caveat to mention.
Any ASX dividend stock's yield reflects what investors have received in the past, not what they might get in the future. Buying Magellan shares today in no way guarantees investors a 5.1% dividend yield going forward.
Many companies tend to pay consistent dividends from year to year, but Magellan is not one of those, though. This company has been on struggle street for a few years now, following a highly damaging saga with its founder and former chief investment officer, Hamish Douglass.
After Douglass's inglorious exit back in 2022, Magellan lost huge chunks of funds under management, which the company is working hard to rebuild. Its most recent earnings report was encouraging, with Magellan reporting significant partner income and a 4% increase in its average assets under management.
So things are certainly looking promising for this ASX financial stock. However, it's still early days, and many investors would be looking for some additional reassurance before coming back to this company. I suspect that's why Magellan is trading on such a high dividend yield right now, given the relatively high level of risk the company still faces.
Magellan is definitely a company worth another look if you're after a high-income investment. Bear in mind, though, that this looks like a classic 'high risk-high reward' investment under current circumstances.
