Yahoo Finance Magellan Aerospace's (TSE:MAL) Dividend Is Being Reduced To CA$0.08
Magellan Aerospace Corporation (TSE:MAL) is reducing its dividend to CA$0.08 on the 30th of June. This means the annual payment is 5.3% of the current stock price, which is above the average for the industry.
View our latest analysis for Magellan Aerospace
Magellan Aerospace's Distributions May Be Difficult To Sustain
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Magellan Aerospace is unprofitable despite paying a dividend, and it is paying out 194% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.
Recent, EPS has fallen by 43.9%, so this could continue over the next year. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.
Magellan Aerospace Doesn't Have A Long Payment History
It is great to see that Magellan Aerospace has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. Since 2013, the first annual payment was CA$0.12, compared to the most recent full-year payment of CA$0.32. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. The dividend has been growing rapidly, however with such a short payment history we can't know for sure if payment can continue to grow over the long term, so caution may be warranted.
Dividend Growth Potential Is Shaky
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Magellan Aerospace's EPS has declined at around 44% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future.
We're Not Big Fans Of Magellan Aerospace's Dividend
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, the dividend is not reliable enough to make this a good income stock.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've identified 2 warning signs for Magellan Aerospace (1 makes us a bit uncomfortable!) 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 yield 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.
