CML Microsystems (LON:CML) Is Paying Out A Dividend Of £0.06

CML Microsystems plc (LON:CML) has announced that it will pay a dividend of £0.06 per share on the 16th of August. This makes the dividend yield 3.4%, which will augment investor returns quite nicely.

View our latest analysis for CML Microsystems

CML Microsystems' Earnings Easily Cover The Distributions

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before making this announcement, CML Microsystems was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

EPS is set to fall by 4.0% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 92%, which is definitely on the higher side.

Dividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the annual payment back then was £0.0625, compared to the most recent full-year payment of £0.11. This means that it has been growing its distributions at 5.8% per annum over that time. We have seen cuts in the past, so while the growth looks promising we would be a little bit cautious about its track record.

The Dividend's Growth Prospects Are Limited

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though CML Microsystems' EPS has declined at around 4.0% a year. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

The Dividend Could Prove To Be Unreliable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments are bit high to be considered sustainable, and the track record isn't the best. Overall, we don't think this company has the makings of a good income stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For instance, we've picked out 4 warning signs for CML Microsystems that investors should take into consideration. Is CML Microsystems not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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