The board of MSC Industrial Direct Co., Inc. (NYSE:MSM) has announced that it will pay a dividend of US$0.75 per share on the 27th of July. This makes the dividend yield 7.2%, which will augment investor returns quite nicely.
Check out our latest analysis for MSC Industrial Direct
MSC Industrial Direct Is Paying Out More Than It Is Earning
A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, MSC Industrial Direct's dividend made up quite a large proportion of earnings but only 53% of free cash flows. This leaves plenty of cash for reinvestment into the business.
Earnings per share is forecast to rise by 31.3% over the next year. However, if the dividend continues growing along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 167% over the next year.
MSC Industrial Direct Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from US$0.88 in 2011 to the most recent annual payment of US$3.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. It is good to see that there has been strong dividend growth, and that there haven't been any cuts for a long time.
Dividend Growth May Be Hard To Achieve
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. However, MSC Industrial Direct's EPS was effectively flat over the past five years, which could stop the company from paying more every year.
Our Thoughts On MSC Industrial Direct's Dividend
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 3 warning signs for MSC Industrial Direct that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
This article by Simply Wall St is general in nature. 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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July 05, 2021 at 05:46PM
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MSC Industrial Direct (NYSE:MSM) Has Re-Affirmed Its Dividend Of US$0.75 - Yahoo Finance
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