Magellan Aerospace (TSE:MAL) Is Reducing Its Dividend To CA$0.05

Magellan Aerospace Corporation (TSE:MAL) has announced that on 29th of September, it will be paying a dividend ofCA$0.05, which a reduction from last year's comparable dividend. However, the dividend yield of 2.7% is still a decent boost to shareholder returns.

View our latest analysis for Magellan Aerospace

Magellan Aerospace's Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The company is paying out a large amount of its cash flows, even though it isn't generating any profit. These payout levels would generally be quite difficult to keep up.

According to analysts, EPS should be several times higher next year. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, so there isn't too much pressure on the dividend.

Magellan Aerospace's Dividend Has Lacked Consistency

It's comforting to see that Magellan Aerospace has been paying a dividend for a number of years now, however it has been cut at least once in that time. This suggests that the dividend might not be the most reliable. Since 2013, the dividend has gone from CA$0.12 total annually to CA$0.20. This means that it has been growing its distributions at 5.8% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Magellan Aerospace's EPS has declined at around 49% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Magellan Aerospace's Dividend Doesn't Look Great

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, this doesn't get us very excited from an income standpoint.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Magellan Aerospace that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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