Silicon Motion Technology (NASDAQ:SIMO) Will Pay A Dividend Of $0.4975

Silicon Motion Technology Corporation (NASDAQ:SIMO) has announced that it will pay a dividend of $0.4975 per share on the 27th of February. The dividend yield will be 3.8% based on this payment which is still above the industry average.

View our latest analysis for Silicon Motion Technology

We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. However, based ont he last payment, Silicon Motion Technology was earning enough to cover the dividend pretty comfortably. The business is earning enough to make the dividend feasible, but the cash payout ratio of 83% shows that most of the cash is going back to the shareholders, which could constrain growth prospects going forward.

Over the next year, EPS is forecast to expand by 92.1%. If the dividend continues along recent trends, we estimate the payout ratio will be 39%, which is in the range that makes us comfortable with the sustainability of the dividend.

The company has a long dividend track record, but it doesn’t look great with cuts in the past. Since 2015, the annual payment back then was $0.60, compared to the most recent full-year payment of $2.00. This works out to be a compound annual growth rate (CAGR) of approximately 13% a year over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Silicon Motion Technology has impressed us by growing EPS at 12% 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.

In summary, while it’s good to see that the dividend hasn’t been cut, we are a bit cautious about Silicon Motion Technology’s payments, as there could be some issues with sustaining them into the future. The company hasn’t been paying a very consistent dividend over time, despite only paying out a small portion of earnings. 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. However, there are other things to consider for investors when analysing stock performance. For instance, we’ve picked out 1 warning sign for Silicon Motion Technology that investors should take into consideration. Is Silicon Motion Technology not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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