CML Microsystems' (LON:CML) Dividend Will Be £0.06

CML Microsystems plc (LON:CML) has announced that it will pay a dividend of £0.06 per share on the 15th of August. The dividend yield will be 3.4% based on this payment which is still above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that CML Microsystems' stock price has increased by 38% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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CML Microsystems' Distributions May Be Difficult To Sustain

A big dividend yield for a few years doesn't mean much if it can't be sustained. Despite not generating a profit, CML Microsystems is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.

Looking forward, earnings per share could rise by 11.8% over the next year if the trend from the last few years continues. This is the right direction to be moving, but it is probably not enough to achieve profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

Check out our latest analysis for CML Microsystems

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. The dividend has gone from an annual total of £0.069 in 2015 to the most recent total annual payment of £0.11. This means that it has been growing its distributions at 4.8% per annum over that time. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company's earnings are not consistent.

The Company Could Face Some Challenges Growing The Dividend

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. CML Microsystems has seen EPS rising for the last five years, at 12% per annum. Even though the company isn't making a profit, strong earnings growth could turn that around in the near future. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.

CML Microsystems' Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about CML Microsystems' payments, as there could be some issues with sustaining them into the future. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We don't think CML Microsystems is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, CML Microsystems has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about. 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.