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The board of Garmin Ltd. (NYSE:GRMN) has announced that it will pay a dividend of $0.73 per share on the 30th of June. This means the annual payment is 2.9% of the current stock price, which is above the average for the industry.
View our latest analysis for Garmin
Garmin's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. Based on the last dividend, Garmin is earning enough to cover the payment, but then it makes up 103% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.
Looking forward, earnings per share is forecast to rise by 22.2% over the next year. If the dividend continues on this path, the payout ratio could be 50% by next year, which we think can be pretty sustainable going forward.
Garmin Has A Solid Track Record
The company has an extended history of paying stable dividends. Since 2013, the annual payment back then was $1.80, compared to the most recent full-year payment of $2.92. This means that it has been growing its distributions at 5.0% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.
We Could See Garmin's Dividend Growing
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. We are encouraged to see that Garmin has grown earnings per share at 6.2% per year over the past five years. The lack of cash flows does make us a bit cautious though, especially when it comes to the future of the dividend.
Our Thoughts On Garmin's Dividend
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Garmin is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.
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. Taking the debate a bit further, we've identified 2 warning signs for Garmin that investors need to be conscious of moving forward. Is Garmin not quite the opportunity you were looking for? Why not check out our selection of top 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.
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