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Methode Electronics (NYSE:MEI) Will Pay A Dividend Of $0.14
Methode Electronics, Inc. (NYSE:MEI) has announced that it will pay a dividend of $0.14 per share on the 2nd of May. This makes the dividend yield 9.4%, which will augment investor returns quite nicely.
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. Methode Electronics' stock price has reduced by 47% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.
Methode Electronics' Projections Indicate Future Payments May Be Unsustainable
Estimates Indicate Methode Electronics' Could Struggle to Maintain Dividend Payments In The Future
Methode Electronics' Future Dividends May Potentially Be At Risk
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Even though Methode Electronics is not generating a profit, it is still paying a dividend. The company is also yet to generate cash flow, so the dividend sustainability is definitely questionable.
The next 12 months is set to see EPS grow by 110.6%. Assuming the dividend continues along recent trends, we think the payout ratio could get very high, which probably can't continue without starting to put some pressure on the balance sheet.
Check out our latest analysis for Methode Electronics
Methode Electronics Has A Solid Track Record
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2015, the annual payment back then was $0.36, compared to the most recent full-year payment of $0.56. This works out to be a compound annual growth rate (CAGR) of approximately 4.5% a year over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Methode Electronics' EPS has fallen by approximately 52% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. 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.
Methode Electronics' Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. Overall, we don't think this company has the makings of a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For example, we've identified 2 warning signs for Methode Electronics (1 shouldn't be ignored!) that you should be aware of before investing. Is Methode Electronics not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
About NYSE:MEI
Methode Electronics
Designs, engineers, manufacture, and sells mechatronic products in North America, Europe, the Middle East, Africa, and Asia.
Undervalued with mediocre balance sheet.
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