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Magellan Aerospace Corporation (TSE:MAL) has announced that on 30th of June, it will be paying a dividend ofCA$0.025, which a reduction from last year's comparable dividend. This payment takes the dividend yield to 1.3%, which only provides a modest boost to overall returns.
Check out our latest analysis for Magellan Aerospace
Magellan Aerospace's Earnings Easily Cover The Distributions
Even a low dividend yield can be attractive if it is sustained for years on end. Even though Magellan Aerospace isn't generating a profit, it is generating healthy free cash flows that easily cover the dividend. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
According to analysts, EPS should be several times higher next year. If the dividend extends its recent trend, estimates say the dividend could reach 13%, which we would be comfortable to see continuing.
Dividend Volatility
The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The dividend has gone from an annual total of CA$0.12 in 2013 to the most recent total annual payment of CA$0.10. Doing the maths, this is a decline of about 1.8% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
Dividend Growth Potential Is Shaky
With a relatively unstable dividend, it's even more important to see if earnings per share is growing. Magellan Aerospace's EPS has fallen by approximately 62% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.
The Dividend Could Prove To Be Unreliable
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would be a touch cautious of relying on this stock primarily for the dividend income.
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. Are management backing themselves to deliver performance? Check their shareholdings in Magellan Aerospace in our latest insider ownership analysis. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.