Yahoo Finance Magellan Aerospace (TSE:MAL) Will Pay A Smaller Dividend Than Last Year
Magellan Aerospace Corporation (TSE:MAL) has announced it will be reducing its dividend payable on the 30th of June to CA$0.08. The yield is still above the industry average at 4.7%.
See our latest analysis for Magellan Aerospace
Magellan Aerospace Might Find It Hard To Continue The Dividend
If the payments aren't sustainable, a high yield for a few years won't matter that much. Magellan Aerospace isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. This is quite a strong warning sign that the dividend may not be sustainable.
Over the next year, EPS might fall by 43.9% based on recent performance. This means the company will be unprofitable and managers could face the tough choice between continuing to pay the dividend or taking pressure off the balance sheet.
Magellan Aerospace Doesn't Have A Long Payment History
The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. Since 2013, the dividend has gone from CA$0.12 to CA$0.32. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.
The Dividend Has Limited Growth Potential
Investors could be attracted to the stock based on the quality of its payment history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Earnings per share has been sinking by 44% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
We're Not Big Fans Of Magellan Aerospace's Dividend
In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. We don't think that this is a great candidate to be an income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For instance, we've picked out 1 warning sign for Magellan Aerospace that investors should take into consideration. Is Magellan Aerospace 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.
