Magellan Aerospace's (TSE:MAL) Dividend Is Being Reduced To CA$0.08

Magellan Aerospace Corporation (TSE:MAL) is reducing its dividend to CA$0.08 on the 30th of June. However, the dividend yield of 4.7% is still a decent boost to shareholder returns.

Check out our latest analysis for Magellan Aerospace

Magellan Aerospace's Distributions May Be Difficult To Sustain

If the payments aren't sustainable, a high yield for a few years won't matter that much. Magellan Aerospace is unprofitable despite paying a dividend, and it is paying out 194% of its free cash flow. These payout levels would generally be quite difficult to keep up.

Over the next year, EPS might fall by 43.9% based on recent performance. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.

Magellan Aerospace Is Still Building Its Track Record

Magellan Aerospace's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2013, the dividend has gone from CA$0.12 to CA$0.32. This means that it has been growing its distributions at 12% per annum over that time. Magellan Aerospace has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Has Limited Growth Potential

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Over the past five years, it looks as though Magellan Aerospace's EPS has declined at around 44% a year. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

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 isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, the dividend is not reliable enough to make this a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 1 warning sign for Magellan Aerospace that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.