Standard Motor Products (NYSE:SMP) Will Pay A Larger Dividend Than Last Year At $0.29
Standard Motor Products, Inc. (NYSE:SMP) has announced that it will be increasing its periodic dividend on the 1st of March to $0.29, which will be 7.4% higher than last year's comparable payment amount of $0.27. This makes the dividend yield 2.6%, which is above the industry average.
Check out our latest analysis for Standard Motor Products
Standard Motor Products' Dividend Is Well Covered By Earnings
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Standard Motor Products' earnings easily covered the dividend, but free cash flows were negative. With the company not bringing in any cash, paying out to shareholders is bound to become difficult at some point.
If the trend of the last few years continues, EPS will grow by 8.1% over the next 12 months. If the dividend continues on this path, the payout ratio could be 27% by next year, which we think can be pretty sustainable going forward.
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 annual payment during the last 10 years was $0.36 in 2013, and the most recent fiscal year payment was $1.08. This implies that the company grew its distributions at a yearly rate of about 12% over that duration. It is great to see strong growth in the dividend payments, but cuts are concerning as it may indicate the payout policy is too ambitious.
Standard Motor Products Could Grow Its Dividend
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. We are encouraged to see that Standard Motor Products has grown earnings per share at 8.1% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Our Thoughts On Standard Motor Products' Dividend
Overall, this is probably not a great income stock, even though the dividend is being raised at the moment. While the low payout ratio is a redeeming feature, this is offset by the minimal cash to cover the payments. Overall, we don't think this company has the makings of a good income stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. To that end, Standard Motor Products has 4 warning signs (and 3 which can't be ignored) we think you should know about. Is Standard Motor Products not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
