MAXIMUS INC (NYSE:MMS): A Reliable Dividend Stock for Sustainable Income

For investors looking for steady income, a methodical screening process is needed to separate strong dividend payers from risky high-yield stocks. One useful technique focuses on companies that have a high dividend rating and also show good basic profitability and sound finances. This method focuses on long-term viability, seeking to find businesses able to keep and possibly increase their dividends over time, instead of just targeting the highest present yield. A stock that recently appeared from this type of screening method is MAXIMUS INC (NYSE:MMS), a government services contractor, which deserves further examination by investors focused on income.

A Focus on Dividend Sustainability

The foundation of this investment strategy is found in assessing a dividend's strength. A high yield can sometimes be misleading, increased by a falling stock price because of basic business issues. For this reason, the screening rules stress a strong ChartMill Dividend Rating, which combines important measures like yield, growth history, and payment viability. Also critical are filters for good Profitability and Health Ratings. Profitability confirms the company is producing real earnings to pay for the dividend, while financial health looks at its balance sheet strength and capacity to handle economic challenges without putting shareholder payments at risk.

Dividend Profile: Reliability Over Flash

MAXIMUS displays a solid dividend profile focused on dependability and careful management, not a very high yield.

• Yield and Track Record: The company provides a dividend yield of 1.42%. This is less than the current S&P 500 average, but it is higher than the yield of many similar companies in the IT Services industry. Significantly, MAXIMUS has built a dependable record, having paid and, importantly, not cut its dividend for at least ten straight years. This history of consistency is a key positive sign for dividend investors.
• Sustainable Payout Ratio: A key positive is the company's payout ratio. MAXIMUS uses only 21.54% of its earnings for dividend payments. This low ratio shows a large margin of safety, as it provides significant room to fund business growth, handle obligations, and continue the dividend during times of reduced earnings.
• Growth and Sustainability: The dividend has increased at a small yearly rate of 1.30% over recent years. Analysts view this growth as maintainable, since the company's earnings are expected to increase more quickly. This balance makes sure the dividend growth is backed by basic business growth, not accounting tactics.

Supporting Fundamentals: Profitability and Valuation

The dividend case is supported by good basic financials. MAXIMUS receives a ChartMill Profitability Rating of 7, showing effective operations.

• The company has been regularly profitable with positive cash flow for years.
• Important return measures are strong, with a Return on Equity of 19.06% and a Return on Invested Capital of 11.77%, both placed in the better part of its industry.
• While its Gross Margin is less than some similar companies, it has been getting better, and the Operating Margin of 9.73% is good and moving higher.

Regarding valuation, the stock seems priced attractively, scoring an 8 on the ChartMill Valuation Rating. Its Price-to-Earnings ratio of 12.6 and Forward P/E of 9.9 are much lower than both industry and S&P 500 averages. This indicates the market might be pricing the company's consistent earnings and reliable dividend too low, possibly giving an opportunity for income investors mindful of value.

A Note on Financial Health

The company's financial health, with a rating of 5, presents a varied but acceptable situation. Solvency measures like the Altman-Z score show little short-term danger of financial trouble. However, the Debt-to-Equity ratio has declined compared to last year and is above many industry peers. This requires attention, although the good free cash flow production, shown by a sound Debt-to-Free-Cash-Flow ratio, gives the ability to handle this debt level over time.

Conclusion

For dividend investors who value long-term viability and dependability, MAXIMUS INC offers a notable example. It shows the result of a screen that considers more than just yield. The company joins a long, steady dividend history with a very low payout ratio, good profitability, and a low valuation. While its yield is not high and the debt level needs observation, the overall picture is of a financially stable business able to provide shareholders with a consistent and increasing income stream for the future.

A full detailed breakdown of the fundamental analysis for MAXIMUS can be found in its Fundamental Report.

This review of MAXIMUS was generated by a systematic screen for good dividend payers. Investors interested in finding other companies that fit similar standards of high dividend quality, acceptable profitability, and financial health can review the pre-configured Best Dividend Stocks screen.

Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer or solicitation to buy or sell any securities. The information presented is based on data provided and should not be the sole basis for any investment decision. Investors should conduct their own due diligence and consult with a qualified financial advisor before making any investment decisions. Past performance is not indicative of future results.