- Oops!Something went wrong.Please try again later.
L3Harris Technologies, Inc. (NYSE:LHX) stock is about to trade ex-dividend in four days. You can purchase shares before the 19th of November in order to receive the dividend, which the company will pay on the 4th of December.
L3Harris Technologies's next dividend payment will be US$0.85 per share, and in the last 12 months, the company paid a total of US$3.40 per share. Based on the last year's worth of payments, L3Harris Technologies has a trailing yield of 1.7% on the current stock price of $194.3. 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 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. Its dividend payout ratio is 79% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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. Fortunately, it paid out only 32% of its free cash flow in the past 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?
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at L3Harris Technologies, with earnings per share up 3.5% on average over the last five years. A high payout ratio of 79% generally happens when a company can't find better uses for the cash. Combined with slim earnings growth in the past few years, L3Harris Technologies could be signalling that its future growth prospects are thin.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, 10 years ago, L3Harris Technologies has lifted its dividend by approximately 14% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Has L3Harris Technologies got what it takes to maintain its dividend payments? Earnings per share growth has been modest and L3Harris Technologies paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, while it has some positive characteristics, we're not inclined to race out and buy L3Harris Technologies today.
On that note, you'll want to research what risks L3Harris Technologies is facing. In terms of investment risks, we've identified 2 warning signs with L3Harris Technologies and understanding them should be part of your investment process.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.