Stock Analysis

Standard Motor Products' (NYSE:SMP) Dividend Will Be Increased To $0.29

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Standard Motor Products, Inc. (NYSE:SMP) has announced that it will be increasing its periodic dividend on the 1st of March to $0.29, which will be 7.4% higher than last year's comparable payment amount of $0.27. This will take the dividend yield to an attractive 2.6%, providing a nice boost to shareholder returns.

View our latest analysis for Standard Motor Products

Standard Motor Products' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Standard Motor Products was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

Over the next year, EPS could expand by 8.1% if recent trends continue. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.

NYSE:SMP Historic Dividend February 6th 2023

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $0.36 in 2013, and the most recent fiscal year payment was $1.08. This means that it has been growing its distributions at 12% per annum over that time. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.

The Dividend Has Growth Potential

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. Standard Motor Products has impressed us by growing EPS at 8.1% per year over the past five years. With a decent amount of growth and a low payout ratio, we think this bodes well for Standard Motor Products' prospects of growing its dividend payments in the future.

Our Thoughts On Standard Motor Products' Dividend

Overall, we always like to see the dividend being raised, but we don't think Standard Motor Products will make a great income stock. With cash flows lacking, it is difficult to see how the company can sustain a dividend payment. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Standard Motor Products (3 are potentially serious!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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