Switch (NYSE:SWCH) Has Re-Affirmed Its Dividend Of US$0.052

Switch, Inc. (NYSE:SWCH) has announced that it will pay a dividend of US$0.052 per share on the 22nd of March. Including this payment, the dividend yield on the stock will be 0.8%, which is a modest boost for shareholders' returns.

Check out our latest analysis for Switch

Switch Doesn't Earn Enough To Cover Its Payments

Even a low dividend yield can be attractive if it is sustained for years on end. Before this announcement, Switch was paying out 508% of what it was earning, and not generating any free cash flows either. This high of a dividend payment could start to put pressure on the balance sheet in the future.

Earnings per share is forecast to rise exponentially over the next year. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 272%, which is unsustainable.

Switch Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. Since 2018, the first annual payment was US$0.056, compared to the most recent full-year payment of US$0.21. This implies that the company grew its distributions at a yearly rate of about 39% over that duration. Switch has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Unfortunately things aren't as good as they seem. Switch's EPS has fallen by approximately 33% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

We're Not Big Fans Of Switch's Dividend

Overall, this isn't a great candidate as an income investment, even though the dividend was stable this year. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, this doesn't get us very excited from an income standpoint.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 4 warning signs for Switch you should be aware of, and 1 of them doesn't sit too well with us. Is Switch not quite the opportunity you were looking for? Why not check out our selection of top 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.