Richardson Electronics (NASDAQ:RELL) Will Pay A Dividend Of $0.06

Richardson Electronics, Ltd. (NASDAQ:RELL) will pay a dividend of $0.06 on the 22nd of February. The dividend yield is 1.2% based on this payment, which is a little bit low compared to the other companies in the industry.

Check out our latest analysis for Richardson Electronics

Richardson Electronics' Payment Has Solid Earnings Coverage

While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. Richardson Electronics is quite easily earning enough to cover the dividend, however it is being let down by weak cash flows. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.

Looking forward, earnings per share is forecast to rise by 4.3% over the next year. If the dividend continues on this path, the payout ratio could be 14% by next year, which we think can be pretty sustainable going forward.

Richardson Electronics Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The dividend has gone from an annual total of $0.20 in 2013 to the most recent total annual payment of $0.24. This means that it has been growing its distributions at 1.8% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. It's encouraging to see that Richardson Electronics has been growing its earnings per share at 59% a year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Our Thoughts On Richardson Electronics' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Richardson Electronics' payments, as there could be some issues with sustaining them into the future. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. To that end, Richardson Electronics has 3 warning signs (and 1 which is a bit unpleasant) we think you should know about. Is Richardson Electronics 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.