Deswell Industries (NASDAQ:DSWL) Is Due To Pay A Dividend Of $0.10

Deswell Industries, Inc. (NASDAQ:DSWL) has announced that it will pay a dividend of $0.10 per share on the 22nd of December. The dividend yield will be 6.2% based on this payment which is still above the industry average.

View our latest analysis for Deswell Industries

Deswell Industries Is Paying Out More Than It Is Earning

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Deswell Industries' dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 136% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

If the company can't turn things around, EPS could fall by 4.9% over the next year. Assuming the dividend continues along recent trends, we believe the payout ratio could reach 110%, which could put the dividend under pressure if earnings don't start to improve.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from $0.08 total annually to $0.20. This implies that the company grew its distributions at a yearly rate of about 9.6% over that duration. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

Dividend Growth May Be Hard To Achieve

With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Over the past five years, it looks as though Deswell Industries' EPS has declined at around 4.9% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

Deswell Industries' 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. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

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. To that end, Deswell Industries has 4 warning signs (and 1 which is significant) we think you should know about. 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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