In This Article:
The board of Microchip Technology Incorporated (NASDAQ:MCHP) has announced that it will pay a dividend on the 5th of June, with investors receiving $0.455 per share. This makes the dividend yield 3.0%, which will augment investor returns quite nicely.
Microchip Technology's Projections Indicate Future Payments May Be Unsustainable
Estimates Indicate Microchip Technology's Could Struggle to Maintain Dividend Payments In The Future
Microchip Technology's Future Dividends May Potentially Be At Risk
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Microchip Technology is unprofitable despite paying a dividend, and it is paying out 101% of its free cash flow. These payout levels would generally be quite difficult to keep up.
Earnings per share is forecast to rise by 193.9% over the next year. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio getting very high over the next year.
View our latest analysis for Microchip Technology
Microchip Technology Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2015, the dividend has gone from $0.712 total annually to $1.82. This works out to be a compound annual growth rate (CAGR) of approximately 9.8% a year over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.
The Company Could Face Some Challenges Growing The Dividend
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Microchip Technology has grown earnings per share at 13% per year over the past five years. It's not great that the company is not turning a profit, but the decent growth in recent years is certainly a positive sign. If the company can become profitable soon, continuing on this trajectory would bode well for the future of the dividend.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. Overall, we don't think this company has the makings of a good income stock.