The board of Garmin Ltd. (NASDAQ:GRMN) has announced that it will be increasing its dividend on the 31st of December to US$0.67. This makes the dividend yield about the same as the industry average at 1.5%.
Garmin's Earnings Easily Cover the Distributions
Unless the payments are sustainable, the dividend yield doesn't mean too much. The last dividend was quite easily covered by Garmin's earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
Looking forward, earnings per share is forecast to fall by 3.6% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could be 46%, which we are pretty comfortable with and we think is feasible on an earnings basis.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2011, the first annual payment was US$1.50, compared to the most recent full-year payment of US$2.68. This works out to be a compound annual growth rate (CAGR) of approximately 6.0% a year over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Garmin has seen EPS rising for the last five years, at 18% per annum. Since earnings per share is growing at an acceptable rate, and the payout policy is balanced, we think the company is positioning itself well to grow earnings and dividends in the future.
Garmin Looks Like A Great Dividend Stock
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. The distributions are easily covered by earnings, and there is plenty of cash being generated as well. If earnings do fall over the next 12 months, the dividend could be buffeted a little bit, but we don't think it should cause too much of a problem in the long term. All of these factors considered, we think this has solid potential as a dividend stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 2 warning signs for Garmin that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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.
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