NVE (NASDAQ:NVEC) Has Announced A Dividend Of $1.00

The board of NVE Corporation (NASDAQ:NVEC) has announced that it will pay a dividend on the 31st of August, with investors receiving $1.00 per share. This means the annual payment is 4.9% of the current stock price, which is above the average for the industry.

See our latest analysis for NVE

NVE's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, NVE was paying out quite a large proportion of both earnings and cash flow, with the dividend being 97% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

EPS is set to grow by 9.6% over the next year if recent trends continue. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 78%, which is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

NVE Is Still Building Its Track Record

It is great to see that NVE has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The most recent annual payment of $4.00 is about the same as the annual payment 8 years ago. NVE hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

The Dividend Has Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that NVE has grown earnings per share at 9.6% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

NVE's Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 2 warning signs for NVE that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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