Radian Group Inc (NYSE:RDN): A Reliable Dividend Stock with Strong Profitability and Financial Health

Dividend investors frequently look for steady, profitable companies with a history of consistent payouts. A method to find these stocks involves a structured screening process that selects for strong dividend ratings while confirming sufficient profitability and financial stability. Radian Group Inc (NYSE:RDN) appears as a potential choice from this screen, which focuses on stocks with a ChartMill Dividend Rating of 7 or higher, along with minimum Health and Profitability Ratings of 5. This approach helps steer clear of high-yield traps, companies with unsustainable payouts, while targeting firms able to maintain and increase dividends over time.

Dividend Strength: Reliable Yield and Growth

RDN’s appeal to dividend investors comes from several important factors detailed in its fundamental analysis report:

• Competitive Yield: At 3.10%, RDN’s dividend yield is higher than the S&P 500 average (2.40%) and slightly above its industry peers (4.75%). While not the highest, the yield is backed by a low payout ratio of 25.42%, suggesting the company can maintain and possibly raise payouts.
• Consistent History: The company has paid dividends for more than ten years without cuts, showing a commitment to shareholders. Its dividend has grown at an annual rate of 151.22% over the past five years, though this high growth is partly due to a low starting point and may slow.
• Payout Stability: The payout ratio is far below the warning level of 80%, lowering the chance of reductions. However, investors should note that earnings growth (1.27% expected yearly) trails dividend growth, which could strain sustainability if not improved.

Profitability and Financial Health: Supporting the Dividend

A dependable dividend depends on solid earnings and a stable balance sheet. RDN performs well here:

• Earnings Strength: With a ChartMill Profitability Rating of 6, RDN has top-tier margins, including a 46.29% profit margin (top 8% of peers) and a 68.74% operating margin (top 8%). Its return on invested capital (7.97%) also beats 77% of competitors, indicating efficient capital use.
• Financial Stability: A Health Rating of 6 shows a balanced position. Liquidity is strong, with a current ratio of 3.59 (top 15% of peers), ensuring short-term debts are covered. However, solvency measures like the Altman-Z score (1.90) and a debt/equity ratio of 0.52 point to moderate leverage, though still better than 71% of industry peers.

Valuation and Growth Outlook

RDN trades at a P/E of 8.07, well below the S&P 500 (27.03) and cheaper than 79% of its industry. This low valuation may offer some protection. Still, growth is slow: revenue has barely changed (0.24% YoY), and earnings are expected to grow just 1.27% yearly. While expected revenue growth (1.89%) is a positive, dividend investors should watch whether earnings can match payouts.

Conclusion

RDN meets the dividend investor’s needs by providing a stable yield, a consistent payout history, and solid profitability, all supported by reasonable financial health. Its low valuation adds safety, though sluggish growth requires ongoing attention.

For investors searching for similar opportunities, review the full list of high-dividend candidates using the Best Dividend Stocks screen.

Disclaimer: This analysis is not investment advice. Always conduct your own research or consult a financial advisor before making investment decisions.