Methode Electronics' (NYSE:MEI) Dividend Will Be $0.14

The board of Methode Electronics, Inc. (NYSE:MEI) has announced that it will pay a dividend on the 26th of April, with investors receiving $0.14 per share. Based on this payment, the dividend yield on the company's stock will be 4.7%, which is an attractive boost to shareholder returns.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Methode Electronics' stock price has reduced by 45% in the last 3 months, which is not ideal for investors and can explain a sharp increase in the dividend yield.

Check out our latest analysis for Methode Electronics

Methode Electronics' Payment Has Solid Earnings Coverage

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Methode Electronics isn't generating any profits, and it is paying out a very high proportion of the cash it is earning. This is quite a strong warning sign that the dividend may not be sustainable.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 4.9%, which makes us pretty comfortable with the sustainability of the dividend.

Methode Electronics Has A Solid Track Record

The company has an extended history of paying stable dividends. The annual payment during the last 10 years was $0.28 in 2014, and the most recent fiscal year payment was $0.56. This means that it has been growing its distributions at 7.2% per annum over that time. Dividends have grown at a reasonable rate over this period, and without any major cuts in the payment over time, we think this is an attractive combination as it provides a nice boost to shareholder returns.

The Dividend Has Limited 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. Unfortunately things aren't as good as they seem. Methode Electronics' EPS has fallen by approximately 19% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Methode Electronics' Dividend Doesn't Look Sustainable

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for Methode Electronics you should be aware of, and 1 of them makes us a bit uncomfortable. 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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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.