Powell Industries, Inc. (NASDAQ:POWL) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 18th of February will not receive this dividend, which will be paid on the 18th of March.
Powell Industries’s next dividend payment will be US$0.26 per share. Last year, in total, the company distributed US$1.04 to shareholders. Based on the last year’s worth of payments, Powell Industries has a trailing yield of 2.8% on the current stock price of $37.08. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Its dividend payout ratio is 78% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth It could become a concern if earnings started to decline. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The good news is it paid out just 22% of its free cash flow in the last year.
It’s positive to see that Powell Industries’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we’re not too excited that Powell Industries’s earnings are down 4.1% a year over the past five years.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, six years ago, Powell Industries has lifted its dividend by approximately 0.7% a year on average.
The Bottom Line
From a dividend perspective, should investors buy or avoid Powell Industries? The payout ratios are within a reasonable range, implying the dividend may be sustainable. Declining earnings are a serious concern, however, and could pose a threat to the dividend in future. To summarise, Powell Industries looks okay on this analysis, although it doesn’t appear a stand-out opportunity.
Wondering what the future holds for Powell Industries? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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