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The board of NVE Corporation (NASDAQ:NVEC) has announced that it will pay a dividend on the 28th of February, with investors receiving US$1.00 per share. Based on this payment, the dividend yield on the company's stock will be 6.5%, which is an attractive boost to shareholder returns.
See our latest analysis for NVE
NVE Doesn't Earn Enough To Cover Its Payments
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, the company was paying out 140% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.
Over the next year, EPS could expand by 2.0% if the company continues along the path it has been on recently. Assuming the dividend continues along recent trends, we think the payout ratio could reach 139%, which probably can't continue without starting to put some pressure on the balance sheet.
NVE Doesn't Have A Long Payment History
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. There hasn't been much of a change in the dividend over the last 7. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
NVE May Find It Hard To Grow The Dividend
Investors could be attracted to the stock based on the quality of its payment history. Earnings per share has been crawling upwards at 2.0% per year. So the company has struggled to grow its EPS yet it's still paying out 140% of its earnings. This gives limited room for the company to raise the dividend in the future.
NVE's Dividend Doesn't Look Sustainable
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The payments are bit high to be considered sustainable, and the track record isn't the best. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for NVE (1 is a bit concerning!) that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.
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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.