MKS Instruments (NASDAQ:MKSI) Has Affirmed Its Dividend Of $0.22

The board of MKS Instruments, Inc. (NASDAQ:MKSI) has announced that it will pay a dividend of $0.22 per share on the 10th of March. Including this payment, the dividend yield on the stock will be 0.9%, which is a modest boost for shareholders' returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that MKS Instruments' stock price has increased by 34% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

Check out our latest analysis for MKS Instruments

MKS Instruments' Earnings Easily Cover The Distributions

If it is predictable over a long period, even low dividend yields can be attractive. However, MKS Instruments' earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

Over the next year, EPS is forecast to fall by 25.3%. If the dividend continues along recent trends, we estimate the payout ratio could be 19%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

MKS Instruments 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. Since 2013, the annual payment back then was $0.60, compared to the most recent full-year payment of $0.88. This means that it has been growing its distributions at 3.9% per annum over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. However, MKS Instruments has only grown its earnings per share at 2.6% per annum over the past five years. Earnings growth is slow, but on the plus side, the dividend payout ratio is low and dividends could grow faster than earnings, if the company decides to increase its payout ratio.

An additional note is that the company has been raising capital by issuing stock equal to 20% of shares outstanding in the last 12 months. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

We Really Like MKS Instruments' Dividend

Overall, we like to see the dividend staying consistent, and we think MKS Instruments might even raise payments in the future. The earnings easily cover the company's distributions, and the company is generating plenty of cash. 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.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for MKS Instruments you should be aware of, and 2 of them are concerning. If you are a dividend investor, you might also want to look at our curated list of high yield 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.