Bel Fuse Inc. (NASDAQ:BELF.A) will pay a dividend of US$0.06 on the 1st of August. This means the annual payment will be 1.1% of the current stock price, which is lower than the industry average.
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 Bel Fuse's stock price has increased by 39% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
Bel Fuse's Dividend Is Well Covered By Earnings
It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Bel Fuse is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
EPS is set to fall by 6.4% over the next 12 months. Assuming the dividend continues along recent trends, we believe the payout ratio could be 12%, which we are pretty comfortable with and we think is feasible on an earnings basis.
The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from US$0.28 in 2012 to the most recent annual payment of US$0.24. The dividend has shrunk at around 1.5% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.
Dividend Growth May Be Hard To Come By
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. Bel Fuse has seen earnings per share falling at 7.0% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth.
The Dividend Could Prove To Be Unreliable
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 the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Bel Fuse that you should be aware of before investing. Is Bel Fuse not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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.