Don't Race Out To Buy L3Harris Technologies, Inc. (NYSE:LHX) Just Because It's Going Ex-Dividend
L3Harris Technologies, Inc. (NYSE:LHX) stock is about to trade ex-dividend in 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, L3Harris Technologies investors that purchase the stock on or after the 7th of March will not receive the dividend, which will be paid on the 22nd of March.
The company's upcoming dividend is US$1.16 a share, following on from the last 12 months, when the company distributed a total of US$4.56 per share to shareholders. Last year's total dividend payments show that L3Harris Technologies has a trailing yield of 2.2% on the current share price of US$209.81. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether L3Harris Technologies has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for L3Harris Technologies
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. L3Harris Technologies is paying out an acceptable 70% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether L3Harris Technologies generated enough free cash flow to afford its dividend. It paid out more than half (53%) of its free cash flow in the past year, which is within an average range for most companies.
It's positive to see that L3Harris Technologies'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?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's not ideal to see L3Harris Technologies's earnings per share have been shrinking at 2.5% a year over the previous five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, L3Harris Technologies has increased its dividend at approximately 12% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
Final Takeaway
Is L3Harris Technologies worth buying for its dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not that we think L3Harris Technologies is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that in mind though, if the poor dividend characteristics of L3Harris Technologies don't faze you, it's worth being mindful of the risks involved with this business. Our analysis shows 3 warning signs for L3Harris Technologies that we strongly recommend you have a look at before investing in the company.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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.
