MODEC (TSE:6269) Will Pay A Larger Dividend Than Last Year At $80.00

The board of MODEC, Inc. (TSE:6269) has announced that it will be paying its dividend of $80.00 on the 30th of March, an increased payment from last year's comparable dividend. Despite this raise, the dividend yield of 1.2% is only a modest boost to shareholder returns.

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 MODEC's stock price has increased by 95% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

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MODEC's Future Dividends May Potentially Be At Risk

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Before making this announcement, MODEC was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

The next 12 months is set to see EPS grow by 6.9%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.

See our latest analysis for MODEC

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.268 in 2015 to the most recent total annual payment of $1.14. This means that it has been growing its distributions at 16% per annum over that time. Dividends have grown rapidly over this time, but with cuts in the past we are not certain that this stock will be a reliable source of income in the future.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. MODEC has seen EPS rising for the last five years, at 60% per annum. Earnings per share is growing at a solid clip, and the payout ratio is low which we think is an ideal combination in a dividend stock as the company can quite easily raise the dividend in the future.

We Really Like MODEC's Dividend

Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All of these factors considered, we think this has solid potential as a dividend stock.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for MODEC that investors need to be conscious of moving forward. Is MODEC not quite the opportunity you were looking for? Why not check out our selection of top 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.