Park Aerospace (NYSE:PKE) Is Increasing Its Dividend To $0.125

The board of Park Aerospace Corp. (NYSE:PKE) has announced that it will be paying its dividend of $0.125 on the 5th of May, an increased payment from last year's comparable dividend. This will take the annual payment to 2.9% of the stock price, which is above what most companies in the industry pay.

See our latest analysis for Park Aerospace

Park Aerospace 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. Prior to this announcement, the company was paying out 103% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Earnings per share could rise by 16.0% over the next year if things go the same way as they have for the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 315%, which probably can't continue without starting to put some pressure on the balance sheet.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The last annual payment of $0.40 was flat on the annual payment from10 years ago. It's encouraging to see some dividend growth, but the dividend has been cut at least once, and the size of the cut would eliminate most of the growth anyway, which makes this less attractive as an income investment.

Park Aerospace's Dividend Might Lack Growth

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Park Aerospace has seen EPS rising for the last five years, at 16% per annum. However, the payout ratio is very high, not leaving much room for growth of the dividend in the future.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Park Aerospace will make a great income stock. 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 would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Park Aerospace that you should be aware of before investing. Is Park Aerospace not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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