Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Intuit Inc. (NASDAQ:INTU) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 9th of January, you won't be eligible to receive this dividend, when it is paid on the 21st of January.
Intuit's next dividend payment will be US$0.53 per share, and in the last 12 months, the company paid a total of US$2.12 per share. Based on the last year's worth of payments, Intuit has a trailing yield of 0.8% on the current stock price of $264.38. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Intuit paying out a modest 32% of its earnings. A useful secondary check can be to evaluate whether Intuit generated enough free cash flow to afford its dividend. Luckily it paid out just 24% of its free cash flow last year.
It's positive to see that Intuit'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.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For this reason, we're glad to see Intuit's earnings per share have risen 15% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past eight years, Intuit has increased its dividend at approximately 17% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
To Sum It Up
From a dividend perspective, should investors buy or avoid Intuit? Intuit 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. Intuit looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of Intuit? See what analysts 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.