Stock Analysis

Powell Industries' (NASDAQ:POWL) Dividend Will Be $0.26

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The board of Powell Industries, Inc. (NASDAQ:POWL) has announced that it will pay a dividend of $0.26 per share on the 21st of September. This means the annual payment is 4.0% of the current stock price, which is above the average for the industry.

View our latest analysis for Powell Industries

Powell Industries Doesn't Earn Enough To Cover Its Payments

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Before this announcement, Powell Industries was paying out 148% of what it was earning, and not generating any free cash flows either. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

The next 12 months is set to see EPS grow by 36.1%. If the dividend continues on its recent course, the payout ratio in 12 months could be 109%, which is a bit high and could start applying pressure to the balance sheet.

NasdaqGS:POWL Historic Dividend August 6th 2022

Powell Industries Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. The dividend has gone from an annual total of $1.00 in 2013 to the most recent total annual payment of $1.04. Dividend payments have grown at less than 1% a year over this period. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

Powell Industries' Dividend Might Lack Growth

Investors could be attracted to the stock based on the quality of its payment history. Powell Industries has impressed us by growing EPS at 47% per year over the past five years. Although earnings per share is up nicely Powell Industries is paying out 148% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

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. Strong earnings growth means Powell Industries has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Powell Industries has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. Is Powell Industries 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.