Mesa Laboratories, Inc. (NASDAQ:MLAB) will pay a dividend of $0.16 on the 16th of March. The dividend yield will be 0.8% based on this payment which is still above the industry average.

Mesa Laboratories Might Find It Hard To Continue The Dividend

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. While Mesa Laboratories is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.

Over the next year, EPS is forecast to rise by 60.1%. While it is good to see income moving in the right direction, it still looks like the company won't achieve profitability. The positive free cash flows give us some comfort, however, that the dividend could continue to be sustained.

Mesa Laboratories Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. The last annual payment of $0.64 was flat on the annual payment from10 years ago. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth Potential Is Shaky

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Mesa Laboratories' EPS has fallen by approximately 59% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

Our Thoughts On Mesa Laboratories' 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. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We don't think Mesa Laboratories is a great stock to add to your portfolio if income is your focus.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. Without at least some growth in earnings per share over time, the dividend will eventually come under pressure either from competition or inflation. Very few businesses see earnings consistently shrink year after year in perpetuity though, and so it might be worth seeing what the 3 analysts we track are forecasting for the future. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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.