Does Silicon Motion Technology Corporation (NASDAQ:SIMO) Have A Place In Your Portfolio?
A sizeable part of portfolio returns can be produced by dividend stocks due to their contribution to compounding returns in the long run. Silicon Motion Technology Corporation (NASDAQ:SIMO) has returned to shareholders over the past 5 years, an average dividend yield of 3.00% annually. Does Silicon Motion Technology tick all the boxes of a great dividend stock? Below, I’ll take you through my analysis. Check out our latest analysis for Silicon Motion Technology
5 questions to ask before buying a dividend stock
When researching a dividend stock, I always follow the following screening criteria:
Is it the top 25% annual dividend yield payer?
Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
Has dividend per share amount increased over the past?
Is its earnings sufficient to payout dividend at the current rate?
Will it have the ability to keep paying its dividends going forward?
How well does Silicon Motion Technology fit our criteria?
The current trailing twelve-month payout ratio for the stock is 48.00%, meaning the dividend is sufficiently covered by earnings. However, going forward, analysts expect SIMO’s payout to fall to 32.22% of its earnings, which leads to a dividend yield of 2.55%. However, EPS should increase to $2.86, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If there’s one type of stock you want to be reliable, it’s dividend stocks and their stable income-generating ability. The reality is that it is too early to consider Silicon Motion Technology as a dividend investment. It has only been consistently paying dividends for 5 years, however, standard practice for reliable payers is to look for a 10-year minimum track record. Relative to peers, Silicon Motion Technology produces a yield of 2.44%, which is high for Semiconductor stocks but still below the market’s top dividend payers.
Next Steps:
Taking all the above into account, Silicon Motion Technology is a complicated pick for dividend investors given that there are a couple of positive things about it as well as negative. However, if you are not strictly just a dividend investor, the stock could still offer some interesting investment opportunities. Given that this is purely a dividend analysis, you should always research extensively before deciding whether or not a stock is an appropriate investment for you. I always recommend analysing the company’s fundamentals and underlying business before making an investment decision. There are three essential factors you should further examine:
Future Outlook: What are well-informed industry analysts predicting for SIMO’s future growth? Take a look at our free research report of analyst consensus for SIMO’s outlook.
Valuation: What is SIMO worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether SIMO is currently mispriced by the market.
Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
