Powell Industries, Inc. (NASDAQ:POWL) will pay a dividend of $0.26 on the 21st of September. The dividend yield will be 4.0% based on this payment which is still above the industry average.

View our latest analysis for Powell Industries

Powell Industries Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the dividend made up 148% of earnings, and the company was generating negative free cash flows. Paying out such a large dividend compared to earnings while also not generating any free cash flow would definitely be difficult to keep up.

The next 12 months is set to see EPS grow by 36.8%. If the dividend continues on its recent course, the payout ratio in 12 months could be 108%, which is a bit high and could start applying pressure to the balance sheet.

Powell Industries Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 9 years of history we want to see a few more years of history before making any solid conclusions. Since 2013, the annual payment back then was $1.00, compared to the most recent full-year payment of $1.04. Its dividends have grown at less than 1% per annum over this time frame. We like that the dividend hasn't been shrinking. However we're conscious that the company hasn't got an overly long track record of dividend payments yet, which makes us wary of relying on its dividend income.

Powell Industries' Dividend Might Lack Growth

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Powell Industries has impressed us by growing EPS at 47% per year over the past five years. While EPS is growing rapidly, Powell Industries paid out a very high 148% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

Powell Industries' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. Overall, we don't think this company has the makings of a good income stock.

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. Case in point: We've spotted 2 warning signs for Powell Industries (of which 1 is potentially serious!) you should know about. Is Powell Industries 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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