MODEC's (TSE:6269) Shareholders Will Receive A Bigger Dividend Than Last Year
MODEC, Inc.'s (TSE:6269) dividend will be increasing from last year's payment of the same period to $80.00 on 30th of March. Although the dividend is now higher, the yield is only 1.3%, which is below the industry average.
While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that MODEC's stock price has increased by 75% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.
MODEC's Future Dividends May Potentially Be At Risk
Even a low dividend yield can be attractive if it is sustained for years on end. However, prior to this announcement, MODEC's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
The next 12 months is set to see EPS grow by 6.9%. 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.
See our latest analysis for MODEC
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from an annual total of $0.268 in 2015 to the most recent total annual payment of $1.14. This implies that the company grew its distributions at a yearly rate of about 16% over that duration. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.
The Dividend Looks Likely To Grow
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. MODEC has impressed us by growing EPS at 60% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
MODEC Looks Like A Great Dividend Stock
Overall, we think this could be an attractive income stock, and it is only getting better by paying a higher dividend this year. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for MODEC that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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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.