Magellan Aerospace's (TSE:MAL) Dividend Will Be Reduced To CA$0.05

Magellan Aerospace Corporation's (TSE:MAL) dividend is being reduced from last year's payment covering the same period to CA$0.05 on the 29th of September. However, the dividend yield of 4.4% is still a decent boost to shareholder returns.

See 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. The company is paying out a large amount of its cash flows, even though it isn't generating any profit. This makes us feel that the dividend will be hard to maintain.

Over the next year, EPS is forecast to expand by 76.6%. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. Unfortunately, for the dividend to continue at current levels the company definitely needs to get there sooner rather than later.

Magellan Aerospace Doesn't Have A Long Payment History

It is great to see that Magellan Aerospace has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The dividend has gone from an annual total of CA$0.12 in 2013 to the most recent total annual payment of CA$0.32. This means that it has been growing its distributions at 12% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Magellan Aerospace's earnings per share has shrunk at 48% a year over the past five years. 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.

We're Not Big Fans Of Magellan Aerospace's Dividend

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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. Taking the debate a bit further, we've identified 1 warning sign for Magellan Aerospace that investors need to be conscious of moving forward. Is Magellan Aerospace not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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