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CML Microsystems plc (LON:CML) will pay a dividend of £0.06 on the 16th of August. This means the annual payment is 3.4% of the current stock price, which is above the average for the industry.
See our latest analysis for CML Microsystems
CML Microsystems' Earnings Easily Cover The Distributions
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Prior to this announcement, CML Microsystems' dividend was making up a very large proportion of earnings, and the company was also not generating any cash flow to offset this. Generally, we think that this would be a risky long term practice.
EPS is set to fall by 4.0% over the next 12 months if recent trends continue. Assuming the dividend continues along recent trends, we think the payout ratio could reach 92%, which is definitely on the higher side.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2014, the dividend has gone from £0.0625 total annually to £0.11. This means that it has been growing its distributions at 5.8% per annum over that time. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. CML Microsystems has seen earnings per share falling at 4.0% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about CML Microsystems' payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. This company is not in the top tier of income providing stocks.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we've picked out 4 warning signs for CML Microsystems that investors should know about before committing capital to this stock. Is CML Microsystems not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.