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Market Overview

Is MTS Systems's Dividend Safe?


Welcome to your daily dividend safety check. Today, we'll be looking into MTS Systems (NASDAQ:MTSC) to see if its 2.75% dividend yield is safe as the company is releasing its earnings on December 15, 2020 before the bell. To better understand this, we'll be looking into its earnings to dividend payout ratio and whether its dividend has recently cut.

MTS Systems's Payout Ratio

A dividend's affordability can be measured by its payout ratio. It's equal to dividends per share divided by earnings per share. MTS Systems has a relatively high payout ratio of 81.08%. When a company's payout ratio is near (or above) 100%, that means a company's earnings are insufficient to cover its dividend and that it may need to eventually borrow money or cut the dividend to stay solvent.

Has MTS Systems Cut Its Dividend in the Recent Past?

Generally, past behavior is not highly predictive of what's to come. However, companies that have a recent history of dividend cuts are more likely to cut them again due to less incentive to appease income investors than companies with historically consistent or rising dividends. MTS Systems has cut its dividend recently; in fact, the last cut was in 2020. This implies that the company's management is willing to solve budgetary issues by cutting dividends and could do so again in the future.

How Safe Is MTS Systems's Dividend Overall?

MTS Systems has failed two of our dividend safety tests. It has a high payout ratio and has two recent cases of dividend cuts. With all of this in mind, it is quite possible that MTS Systems will cut its dividend next quarter.

Looking for more help identifying reliable investments? Check out Benzinga's Breakout Opportunity Letter.


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Posted-In: Dividends

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