Microchip Technology Incorporated (NASDAQ:MCHP) will increase its dividend from last year’s comparable payment on the 6th of December to $0.439. This will take the dividend yield to an attractive 2.1%, providing a nice boost to shareholder returns.
See our latest analysis for Microchip Technology
We like to see robust dividend yields, but that doesn’t matter if the payment isn’t sustainable. However, Microchip Technology’s earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.
The next year is set to see EPS grow by 1.5%. If the dividend continues on this path, the payout ratio could be 35% by next year, which we think can be pretty sustainable going forward.
The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was $0.706, compared to the most recent full-year payment of $1.76. This works out to be a compound annual growth rate (CAGR) of approximately 9.5% a year 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.
Investors could be attracted to the stock based on the quality of its payment history. Microchip Technology has impressed us by growing EPS at 140% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.
Overall, a dividend increase is always good, and we think that Microchip Technology is a strong income stock thanks to its track record and growing earnings. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we’ve come across 2 warning signs for Microchip Technology you should be aware of, and 1 of them is potentially serious. Is Microchip Technology not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
Find out whether Microchip Technology is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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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.
