Analog Devices, Inc. (NASDAQ:ADI) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Analog Devices, Inc. (NASDAQ:ADI) stock is about to trade ex-dividend in four days. Investors can purchase shares before the 3rd of December in order to be eligible for this dividend, which will be paid on the 15th of December.
Analog Devices's next dividend payment will be US$0.62 per share, on the back of last year when the company paid a total of US$2.48 to shareholders. Based on the last year's worth of payments, Analog Devices stock has a trailing yield of around 1.8% on the current share price of $137.75. If you buy this business for its dividend, you should have an idea of whether Analog Devices's dividend is reliable and sustainable. As a result, readers should always check whether Analog Devices has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for Analog Devices
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Analog Devices paid out more than half (75%) of its earnings last year, which is a regular payout ratio for 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 48% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Analog Devices's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Analog Devices, with earnings per share up 8.2% on average over the last five years. Decent historical earnings per share growth suggests Analog Devices has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, Analog Devices has lifted its dividend by approximately 12% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Is Analog Devices an attractive dividend stock, or better left on the shelf? While earnings per share growth has been modest, Analog Devices's dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. All things considered, we are not particularly enthused about Analog Devices from a dividend perspective.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. In terms of investment risks, we've identified 2 warning signs with Analog Devices and understanding them should be part of your investment process.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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.
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