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Don't Get Too Attached to Gilat Satellite Networks' Juicy Dividend

By Anders Bylund - Jan 26, 2021 at 3:47PM

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These payouts have almost no history, and the buck literally stops here.

The perfect dividend stock offers more than just a beefy yield. The company's board of directors should also show a real commitment to keeping the payouts coming for many years, and it's even better if the dividends are being financed by a steadily growing stream of free cash flows. Based on those criteria, I'm afraid that income investors should walk away from Gilat Satellite Networks (GILT -3.07%).

This maker of satellite communications equipment is no ultra-reliable Dividend Aristocrat. The in-flight connectivity specialist sports a generous dividend yield of 7.8% today, but that's kind of a mirage.

Gilat's rocky dividend history

Gilat has issued a grand total of three dividend payments so far and management has no clear-cut plans to distribute more.

The first was a one-time payment of $0.45 per share in April 2019. That worked out to a yield of 5.3% at the share prices of the time. Gilat's leadership was hoping to continue the practice of sharing surplus cash with stockholders, but you know what they say about the best-laid plans of mice and men. The company's "ample liquidity" dried up that year, and rival Comtech Communications (CMTL -4.71%) announced a $530 million buyout offer for Gilat in early 2020. Even if Gilat had been in a position to distribute any extra cash with its shareholders, it's not common practice to do so when there's a takeover in progress. Saving that cash for Comtech was more in the spirit of the proposed merger.

A businessman puts his hand down to stop a line of falling dominoes before they reach a pink piggy bank.

Image source: Getty Images.

Two more dividend payouts -- and that's all

Let's get back to the mice and men. Comtech withdrew its buyout offer in early October, at which point it was obligated to send Gilat a $70 million breakup fee. The COVID-19 pandemic shattered the dream of what Gilat Chairman Dov Baharav had called "a perfect marriage," and the Israel-based company quickly decided to pour the $70 million windfall into some more dividend payments.

A payout of $0.36 per share followed in November. Gilat consumed the last of its breakup fee in a final dividend check of $0.63 per share on Jan. 20. But that's it. This company has no plans to cook up another dividend check anytime soon.

However, thanks to the eye-popping effective yield of 7.8% those payouts generated, Gilat is now popping up on the radar of income investors. Dig just a little bit deeper and you'll find that it's a terrible dividend stock. You could consider buying this stock as a bet on the eventual recoveries of the travel and hospitality sector, where most of Gilat's major customers are found. That's a whole different ball of wax. But it could be years before Gilat prints out its next dividend check.

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Stocks Mentioned

Gilat Satellite Networks Ltd. Stock Quote
Gilat Satellite Networks Ltd.
$6.64 (-3.07%) $0.21
Comtech Telecommunications Corp. Stock Quote
Comtech Telecommunications Corp.
$11.97 (-4.71%) $0.59

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