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 NXP Semiconductors N.V. (NASDAQ:NXPI) is about to go ex-dividend in just 4 days. This means that investors who purchase shares on or after the 13th of September will not receive the dividend, which will be paid on the 4th of October.
NXP Semiconductors's upcoming dividend is US$0.38 a share, following on from the last 12 months, when the company distributed a total of US$1.00 per share to shareholders. Last year's total dividend payments show that NXP Semiconductors has a trailing yield of 1.4% on the current share price of $105.81. If you buy this business for its dividend, you should have an idea of whether NXP Semiconductors's dividend is reliable and sustainable. As a result, readers should always check whether NXP Semiconductors has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. NXP Semiconductors has a low and conservative payout ratio of just 10% of its income after tax. 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. The good news is it paid out just 6.2% of its free cash flow in the last year.
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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see NXP Semiconductors's earnings have been skyrocketing, up 39% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, NXP Semiconductors looks like a promising growth company.
Unfortunately NXP Semiconductors has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
To Sum It Up
Has NXP Semiconductors got what it takes to maintain its dividend payments? NXP Semiconductors has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
Ever wonder what the future holds for NXP Semiconductors? See what the 23 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.