The board of PCTEL, Inc. (NASDAQ:PCTI) has announced that it will pay a dividend on the 13th of August, with investors receiving US$0.055 per share. This means the annual payment is 3.3% of the current stock price, which is above the average for the industry.
PCTEL Doesn't Earn Enough To Cover Its Payments
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last payment, PCTEL's profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
EPS is set to fall by 36.9% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could reach 192%, which could put the dividend in jeopardy if the company's earnings don't improve.
PCTEL Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2011, the dividend has gone from US$0.12 to US$0.22. This means that it has been growing its distributions at 6.2% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
Dividend Growth Could Be Constrained
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that PCTEL has grown earnings per share at 37% per year over the past five years. EPS has been growing well, but PCTEL has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about PCTEL's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. Overall, we don't think this company has the makings of a good income 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. As an example, we've identified 2 warning signs for PCTEL that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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