The board of MODEC, Inc. (TSE:6269) has announced that it will pay a dividend on the 28th of March, with investors receiving $30.00 per share. Even though the dividend went up, the yield is still quite low at only 1.8%.
View our latest analysis for MODEC
MODEC's Future Dividends May Potentially Be At Risk
Even a low dividend yield can be attractive if it is sustained for years on end. Before making this announcement, MODEC's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
Over the next year, EPS is forecast to fall by 4.9%. If the dividend continues along the path it has been on recently, the company could be paying out more than double what it is earning, which is definitely a bit high to be sustainable going forward.
Dividend Volatility
The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2014, the annual payment back then was $0.314, compared to the most recent full-year payment of $0.384. This implies that the company grew its distributions at a yearly rate of about 2.0% over that duration. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
Dividend Growth Could Be Constrained
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that MODEC has grown earnings per share at 36% per year over the past five years. EPS has been growing well, but MODEC has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
In Summary
Overall, we always like to see the dividend being raised, but we don't think MODEC will make a great income stock. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.
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. Case in point: We've spotted 2 warning signs for MODEC (of which 1 is a bit unpleasant!) 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.
About TSE:6269
MODEC
A general contractor, engages in the engineering, procurement, construction, and installation of floating production systems worldwide.
Outstanding track record and good value.
