Benchmark Electronics, Inc. (NYSE:BHE) has announced that it will pay a dividend of $0.165 per share on the 12th of April. This means the annual payment is 2.2% of the current stock price, which is above the average for the industry.

See our latest analysis for Benchmark Electronics

Benchmark Electronics' Payment Has Solid Earnings Coverage

While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. However, prior to this announcement, Benchmark Electronics' dividend was comfortably covered by both cash flow and earnings. As a result, a large proportion of what it earned was being reinvested back into the business.

Looking forward, earnings per share is forecast to rise by 10.1% over the next year. If the dividend continues on this path, the payout ratio could be 36% by next year, which we think can be pretty sustainable going forward.

Benchmark Electronics Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2018, the dividend has gone from $0.60 total annually to $0.66. This implies that the company grew its distributions at a yearly rate of about 1.6% over that duration. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

The Dividend Looks Likely To Grow

Investors could be attracted to the stock based on the quality of its payment history. We are encouraged to see that Benchmark Electronics has grown earnings per share at 30% per year over the past five years. A low payout ratio gives the company a lot of flexibility, and growing earnings also make it very easy for it to grow the dividend.

Benchmark Electronics Looks Like A Great Dividend Stock

Overall, we like to see the dividend staying consistent, and we think Benchmark Electronics might even raise payments in the future. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.

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. For instance, we've picked out 2 warning signs for Benchmark Electronics that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.