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Benchmark Electronics, Inc. (NYSE:BHE) will pay a dividend of $0.165 on the 14th of October. The dividend yield will be 2.5% based on this payment which is still above the industry average.
Check out our latest analysis for Benchmark Electronics
Benchmark Electronics' Dividend Is Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Benchmark Electronics' earnings easily covered the dividend, but free cash flows were negative. Since a dividend means the company is paying out cash to investors, this could prove to be a problem in the future.
The next year is set to see EPS grow by 23.5%. If the dividend continues on this path, the payout ratio could be 44% by next year, which we think can be pretty sustainable going forward.
Benchmark Electronics Doesn't Have A Long Payment History
The company has maintained a consistent dividend for a few years now, but we would like to see a longer track record before relying on it. Since 2018, the dividend has gone from $0.60 total annually to $0.66. This implies that the company grew its distributions at a yearly rate of about 2.4% over that duration. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.
Dividend Growth May Be Hard To Achieve
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, Benchmark Electronics' EPS was effectively flat over the past five years, which could stop the company from paying more every year. Growth of 0.4% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't necessarily bad, but we wouldn't expect rapid dividend growth in the future.
Our Thoughts On Benchmark Electronics' Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While the low payout ratio is redeeming feature, this is offset by the minimal cash to cover the payments. This company is not in the top tier of income providing stocks.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Benchmark Electronics has 2 warning signs (and 1 which is potentially serious) we think you should know about. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.