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Gentex Corporation's (NASDAQ:GNTX) investors are due to receive a payment of US$0.12 per share on 20th of July. This payment means the dividend yield will be 1.7%, which is below the average for the industry.
Gentex's Earnings Easily Cover the Distributions
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, prior to this announcement, Gentex's dividend was comfortably covered by both cash flow and earnings. This means that most of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 25.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 29%, which is in the range that makes us comfortable with the sustainability of the dividend.
Gentex Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2012, the first annual payment was US$0.24, compared to the most recent full-year payment of US$0.48. This implies that the company grew its distributions at a yearly rate of about 7.2% over that duration. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Gentex May Find It Hard To Grow The Dividend
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, Gentex has only grown its earnings per share at 2.1% per annum over the past five years. While EPS growth is quite low, Gentex has the option to increase the payout ratio to return more cash to shareholders.
Gentex Looks Like A Great Dividend Stock
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Gentex that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.