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Here's Why We're Wary Of Buying Marvell Technology Group Ltd.'s (NASDAQ:MRVL) For Its Upcoming Dividend

Simply Wall St

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 Marvell Technology Group Ltd. (NASDAQ:MRVL) is about to go ex-dividend in just 4 days. Ex-dividend means that investors that purchase the stock on or after the 24th of December will not receive this dividend, which will be paid on the 16th of January.

Marvell Technology Group's next dividend payment will be US$0.06 per share. Last year, in total, the company distributed US$0.24 to shareholders. Based on the last year's worth of payments, Marvell Technology Group stock has a trailing yield of around 0.9% on the current share price of $25.58. If you buy this business for its dividend, you should have an idea of whether Marvell Technology Group's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Marvell Technology Group

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. Marvell Technology Group paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out more than half (50%) of its free cash flow in the past year, which is within an average range for most companies.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:MRVL Historical Dividend Yield, December 19th 2019

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Marvell Technology Group was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Marvell Technology Group dividends are largely the same as they were eight years ago.

Get our latest analysis on Marvell Technology Group's balance sheet health here.

The Bottom Line

Should investors buy Marvell Technology Group for the upcoming dividend? We're a bit uncomfortable with it paying a dividend while being loss-making. However, we note that the dividend was covered by cash flow. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.

Wondering what the future holds for Marvell Technology Group? See what the 25 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 editorial-team@simplywallst.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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.