Richardson Electronics, Ltd. (NASDAQ:RELL) will pay a dividend of $0.06 on the 26th of February. This means the annual payment is 1.8% of the current stock price, which is above the average for the industry.

Check out our latest analysis for Richardson Electronics

Richardson Electronics' Future Dividends May Potentially Be At Risk

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Richardson Electronics' profits didn't cover the dividend, but the company was generating enough cash instead. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.

Earnings per share is forecast to rise by 134.5% over the next year. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.

Richardson Electronics Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The last annual payment of $0.24 was flat on the annual payment from10 years ago. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

Dividend Growth Could Be Constrained

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Richardson Electronics has seen EPS rising for the last five years, at 31% per annum. EPS has been growing well, but Richardson Electronics has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.

Our Thoughts On Richardson Electronics' Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Richardson Electronics' payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Richardson Electronics is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 2 warning signs for Richardson Electronics that investors should take into consideration. Is Richardson Electronics 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.