In This Article:
Power Integrations, Inc. (NASDAQ:POWI) has announced that it will be increasing its periodic dividend on the 31st of December to $0.21, which will be 5.0% higher than last year's comparable payment amount of $0.20. This will take the dividend yield to an attractive 1.2%, providing a nice boost to shareholder returns.
View our latest analysis for Power Integrations
Power Integrations' Projected Earnings Seem Likely To Cover Future Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 122% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 73%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.
Over the next year, EPS is forecast to expand by 190.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 49% which would be quite comfortable going to take the dividend forward.
Power Integrations Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2014, the dividend has gone from $0.24 total annually to $0.80. This means that it has been growing its distributions at 13% per annum over that time. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
Dividend Growth Is Doubtful
The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. It's not great to see that Power Integrations' earnings per share has fallen at approximately 7.9% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
In Summary
In summary, while it's always good to see the dividend being raised, we don't think Power Integrations' payments are rock solid. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. Overall, we don't think this company has the makings of a good income stock.