Benchmark Electronics, Inc. (NYSE:BHE) has announced that it will pay a dividend of $0.165 per share on the 13th of October. Based on this payment, the dividend yield on the company's stock will be 2.7%, which is an attractive boost to shareholder returns.
Benchmark Electronics' Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Benchmark Electronics was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.
Over the next year, EPS is forecast to expand by 11.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 35% by next year, which is in a pretty sustainable range.
Benchmark Electronics Is Still Building Its Track Record
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. Since 2018, the dividend has gone from $0.60 total annually to $0.66. This implies that the company grew its distributions at a yearly rate of about 1.9% over that duration. Benchmark Electronics hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.
The Dividend Looks Likely To Grow
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Benchmark Electronics has impressed us by growing EPS at 41% per year over the past five years. Rapid earnings growth and a low payout ratio suggest this company has been effectively reinvesting in its business. Should that continue, this company could have a bright future.
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Benchmark Electronics is earning enough to cover the payments, the cash flows are lacking. We don't think Benchmark Electronics is a great stock to add to your portfolio if income is your focus.
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. For instance, we've picked out 1 warning sign for Benchmark Electronics that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.
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