Benchmark Electronics (NYSE:BHE) Has Announced That It Will Be Increasing Its Dividend To US$0.17

Simply Wall St
·3 min read

The board of Benchmark Electronics, Inc. (NYSE:BHE) has announced that it will be increasing its dividend on the 14th of July to US$0.17. This takes the dividend yield to 2.2%, which shareholders will be pleased with.

See our latest analysis for Benchmark Electronics

Benchmark Electronics' Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 129% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 19%. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

The next year is set to see EPS grow by 116.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 60% which would be quite comfortable going to take the dividend forward.

historic-dividend
historic-dividend

Benchmark Electronics Is Still Building Its Track Record

Looking back, the dividend has been stable, but the company hasn't been paying a dividend for very long so we can't be confident that the dividend will remain stable through all economic environments. Since 2018, the dividend has gone from US$0.60 to US$0.66. This means that it has been growing its distributions at 3.2% per annum over that time. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Let's not jump to conclusions as things might not be as good as they appear on the surface. Benchmark Electronics' earnings per share has shrunk at 23% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. It's not all bad news though, as the earnings are predicted to rise over the next 12 months - we would just be a bit cautious until this becomes a long term trend.

Benchmark Electronics' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Benchmark Electronics' payments are rock solid. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 2 warning signs for Benchmark Electronics that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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