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Silicon Motion Technology Corporation (NASDAQ:SIMO) will pay a dividend of US$0.35 on the 19th of August. The dividend yield will be 1.8% based on this payment which is still above the industry average.
Silicon Motion Technology's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Silicon Motion Technology's dividend was comfortably covered by both cash flow and earnings. This indicates that quite a large proportion of earnings is being invested back into the business.
The next year is set to see EPS grow by 77.7%. Assuming the dividend continues along recent trends, we think the payout ratio could be 29% by next year, which is in a pretty sustainable range.
Silicon Motion Technology Doesn't Have A Long Payment History
The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. The first annual payment during the last 9 years was US$0.60 in 2012, and the most recent fiscal year payment was US$1.40. This means that it has been growing its distributions at 9.9% per annum over that time. Investors will likely want to see a longer track record of growth before making decision to add this to their income portfolio.
The Dividend Has Growth Potential
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Silicon Motion Technology has impressed us by growing EPS at 7.0% per year over the past five years. Shareholders are getting plenty of the earnings returned to them, which combined with strong growth makes this quite appealing.
Our Thoughts On Silicon Motion Technology's Dividend
Overall, we think Silicon Motion Technology is a solid choice as a dividend stock, even though the dividend wasn't raised this year. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. 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 Silicon Motion Technology that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.
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. 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.
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