MSC Industrial Direct (NYSE:MSM) Is Due To Pay A Dividend Of US$0.75

MSC Industrial Direct Co., Inc. (NYSE:MSM) has announced that it will pay a dividend of US$0.75 per share on the 26th of July. The dividend yield will be 4.1% based on this payment which is still above the industry average.

Check out our latest analysis for MSC Industrial Direct

MSC Industrial Direct's 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 dividend, MSC Industrial Direct is earning enough to cover the payment, but the it makes up 105% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Looking forward, earnings per share is forecast to rise by 15.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 54%, which is in the range that makes us comfortable with the sustainability of the dividend.

MSC Industrial Direct Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from US$1.00 in 2012 to the most recent annual payment of US$3.00. This works out to be a compound annual growth rate (CAGR) of approximately 12% a year over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.

MSC Industrial Direct Could Grow Its Dividend

Investors could be attracted to the stock based on the quality of its payment history. MSC Industrial Direct has seen EPS rising for the last five years, at 5.9% per annum. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.

Our Thoughts On MSC Industrial Direct's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about MSC Industrial Direct's payments, as there could be some issues with sustaining them into the future. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. 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. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for MSC Industrial Direct that you should be aware of before investing. Is MSC Industrial Direct 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.