Magellan Aerospace Corporation (TSE:MAL) is set to issue a CA$0.025 dividend on December 29th, 2023, representing a yield of 1.3%. This decision comes despite the company's lack of profitability or free cash flow, raising questions about the sustainability of such a payout. However, these concerns are somewhat mitigated by forecasts of a significant increase in earnings per share (EPS) next year, which could lower the estimated payout ratio of 8.4%.
The aerospace company has been grappling with declining dividends since 2013, falling from CA$0.12 annually to CA$0.10 (USD1 = CAD1.3792). This downward trend, shrinking by 1.8% per year, signals potential challenges within the company. Over the past five years, Magellan's EPS has declined around 66% per year, casting further doubts on the potential for dividend growth.
Despite these challenges, analysts expect a rise in earnings next year that could bolster future dividends. The market tends to value a consistent dividend policy, and Magellan Aerospace's decision to maintain its dividend may indicate more regular payments in the future. However, this would require robust growth or consistency to support such distributions given the current lack of sufficient earnings.
Investors are encouraged to consider insider shareholdings in Magellan Aerospace and other strong dividend payers as part of their investment strategy. The company's lack of free cash flow, the market's value on a consistent dividend policy, and the potential growth of future dividends are all key factors to consider when evaluating this aerospace entity.
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