MSC Industrial Direct (NYSE:MSM) Has Affirmed Its Dividend Of US$0.75

·2 min read

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 26th of July. This means the annual payment is 4.0% of the current stock price, which is above the average for the industry.

View our latest analysis for MSC Industrial Direct

MSC Industrial Direct's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last dividend, MSC Industrial Direct is earning enough to cover the payment, but the it makes up 171% 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 15.4% over the next year. If the dividend continues on this path, the payout ratio could be 55% by next year, which we think can be pretty sustainable going forward.

historic-dividend
historic-dividend

MSC Industrial Direct Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The dividend has gone from US$0.88 in 2012 to the most recent annual payment of US$3.00. This means that it has been growing its distributions at 13% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Has Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. MSC Industrial Direct has seen EPS rising for the last five years, at 5.9% per annum. 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 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. While MSC Industrial Direct is earning enough to cover the payments, the cash flows are lacking. 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. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 3 warning signs for MSC Industrial Direct you should be aware of, and 1 of them is a bit unpleasant. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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