The board of Silicon Motion Technology Corporation (NASDAQ:SIMO) has announced that it will pay a dividend of $0.4975 per share on the 27th of November. Based on this payment, the dividend yield on the company's stock will be 3.6%, which is an attractive boost to shareholder returns.

View our latest analysis for Silicon Motion Technology

Silicon Motion Technology's Projected Earnings Seem Likely To Cover Future Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. However, based ont he last payment, Silicon Motion Technology was earning enough to cover the dividend pretty comfortably. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

The next year is set to see EPS grow by 89.1%. If the dividend continues on this path, the payout ratio could be 43% by next year, which we think can be pretty sustainable going forward.

Dividend Volatility

While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2014, the annual payment back then was $0.60, compared to the most recent full-year payment of $2.00. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Silicon Motion Technology has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Silicon Motion Technology has impressed us by growing EPS at 12% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

Our Thoughts On Silicon Motion Technology's Dividend

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. While Silicon Motion Technology is earning enough to cover the dividend, we are generally unimpressed with its future prospects. This company is not in the top tier of income providing stocks.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 1 warning sign for Silicon Motion Technology that investors should take into consideration. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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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.