MSC Industrial Direct's (NYSE:MSM) Dividend Will Be US$0.75

The board of MSC Industrial Direct Co., Inc. (NYSE:MSM) has announced that it will pay a dividend on the 27th of July, with investors receiving US$0.75 per share. The dividend yield will be 7.2% based on this payment which is still above the industry average.

Check out our latest analysis for MSC Industrial Direct

MSC Industrial Direct Doesn't Earn Enough To Cover Its Payments

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last payment made up 89% of earnings, but cash flows were much higher. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.

The next 12 months is set to see EPS grow by 31.3%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 167%, which probably can't continue putting some pressure on the balance sheet.

MSC Industrial Direct Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from US$0.88 in 2011 to the most recent annual payment of US$3.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. We can see that payments have shown some very nice upward momentum without faltering, which provides some reassurance that future payments will also be reliable.

Dividend Growth May Be Hard To Achieve

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. However, MSC Industrial Direct's EPS was effectively flat over the past five years, which could stop the company from paying more every year.

In Summary

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. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 3 warning signs for MSC Industrial Direct that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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