Stock Analysis

Powell Industries (NASDAQ:POWL) Is Paying Out A Dividend Of $0.26

NasdaqGS:POWL
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The board of Powell Industries, Inc. (NASDAQ:POWL) has announced that it will pay a dividend on the 14th of December, with investors receiving $0.26 per share. This makes the dividend yield 4.0%, which will augment investor returns quite nicely.

Our analysis indicates that POWL is potentially undervalued!

Powell Industries Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, earnings were actually smaller than the dividend, and the company was actually spending more cash than it was making. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

Over the next year, EPS is forecast to expand by 11.7%. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 133% over the next year.

historic-dividend
NasdaqGS:POWL Historic Dividend November 7th 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. Since 2013, the dividend has gone from $1.00 total annually to $1.04. Dividend payments have grown at less than 1% a year over this period. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Powell Industries Might Find It Hard To Grow Its Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Powell Industries has seen EPS rising for the last five years, at 47% per annum. EPS has been growing well, but Powell Industries has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Powell Industries' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In general, the distributions are a little bit higher than we would like, but we can't ignore the fact the quickly growing earnings gives this stock great potential in the future. We don't think Powell Industries is a great stock to add to your portfolio if income is your focus.

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 makes us a bit uncomfortable) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.