Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Brooks Automation, Inc. (NASDAQ:BRKS) is about to trade ex-dividend in the next 3 days. Investors can purchase shares before the 5th of December in order to be eligible for this dividend, which will be paid on the 20th of December.
Brooks Automation's next dividend payment will be US$0.10 per share. Last year, in total, the company distributed US$0.40 to shareholders. Looking at the last 12 months of distributions, Brooks Automation has a trailing yield of approximately 0.9% on its current stock price of $45.51. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Brooks Automation has been able to grow its dividends, or if the dividend might be cut.
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. Brooks Automation paid out a disturbingly high 291% of its profit as dividends last year, which makes us concerned there's something we don't fully understand in the business. A useful secondary check can be to evaluate whether Brooks Automation generated enough free cash flow to afford its dividend. It distributed 43% of its free cash flow as dividends, a comfortable payout level for most companies.
It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Brooks Automation fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
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. It's encouraging to see Brooks Automation has grown its earnings rapidly, up 46% a year for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last eight years, Brooks Automation has lifted its dividend by approximately 2.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Brooks Automation is keeping back more of its profits to grow the business.
The Bottom Line
From a dividend perspective, should investors buy or avoid Brooks Automation? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Brooks Automation's paying out such a high percentage of its profit. In summary, it's hard to get excited about Brooks Automation from a dividend perspective.
Ever wonder what the future holds for Brooks Automation? See what the five 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 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.
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.