NVE Corporation (NASDAQ:NVEC) has announced that it will pay a dividend of $1.00 per share on the 30th of May. Based on this payment, the dividend yield on the company's stock will be 5.9%, which is an attractive boost to shareholder returns.
Our free stock report includes 1 warning sign investors should be aware of before investing in NVE. Read for free now.NVE's Future Dividends May Potentially Be At Risk
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, the company's dividend was much higher than its earnings. Without profits and cash flows increasing, it would be difficult for the company to continue paying the dividend at this level.
Earnings per share could rise by 0.8% over the next year if things go the same way as they have for the last few years. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 128% over the next year.
Check out our latest analysis for NVE
NVE Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. The most recent annual payment of $4.00 is about the same as the annual payment 10 years ago. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.
The Dividend's Growth Prospects Are Limited
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately, NVE's earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. The company is paying out a lot of its profits, even though it is growing those profits pretty slowly. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. We don't think NVE is a great stock to add to your portfolio if income is your focus.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. 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 NVE that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.
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