Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that QUALCOMM Incorporated (NASDAQ:QCOM) is about to go ex-dividend in just 3 days. If you purchase the stock on or after the 4th of December, you won't be eligible to receive this dividend, when it is paid on the 19th of December.
QUALCOMM's next dividend payment will be US$0.62 per share. Last year, in total, the company distributed US$2.48 to shareholders. Based on the last year's worth of payments, QUALCOMM stock has a trailing yield of around 2.9% on the current share price of $84.8. If you buy this business for its dividend, you should have an idea of whether QUALCOMM's dividend is reliable and sustainable. So we need to investigate whether QUALCOMM can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. QUALCOMM is paying out an acceptable 68% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Thankfully its dividend payments took up just 46% of the free cash flow it generated, which is a comfortable payout ratio.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. So we're not too excited that QUALCOMM's earnings are down 4.1% a year over the past five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, QUALCOMM has lifted its dividend by approximately 15% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
The Bottom Line
Should investors buy QUALCOMM for the upcoming dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. All things considered, we are not particularly enthused about QUALCOMM from a dividend perspective.
Curious what other investors think of QUALCOMM? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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