Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Benchmark Electronics, Inc. (NYSE:BHE) is about to trade ex-dividend in the next 3 days. This means that investors who purchase shares on or after the 27th of December will not receive the dividend, which will be paid on the 13th of January.
Benchmark Electronics's next dividend payment will be US$0.15 per share, and in the last 12 months, the company paid a total of US$0.60 per share. Based on the last year's worth of payments, Benchmark Electronics has a trailing yield of 1.7% on the current stock price of $34.4. If you buy this business for its dividend, you should have an idea of whether Benchmark Electronics's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Benchmark Electronics's payout ratio is modest, at just 41% of profit. A useful secondary check can be to evaluate whether Benchmark Electronics generated enough free cash flow to afford its dividend. Luckily it paid out just 22% of its free cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Benchmark Electronics's 6.6% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Benchmark Electronics dividends are largely the same as they were two years ago. If a company's dividend stays flat while earnings are in decline, this is typically a sign that it is paying out a larger percentage of its earnings. This can become unsustainable if earnings fall far enough.
To Sum It Up
Is Benchmark Electronics an attractive dividend stock, or better left on the shelf? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. To summarise, Benchmark Electronics looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Wondering what the future holds for Benchmark Electronics? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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