Nasdaq, Inc. (NASDAQ:NDAQ) stock is about to trade ex-dividend in 4 days time. You will need to purchase shares before the 12th of March to receive the dividend, which will be paid on the 27th of March.
Nasdaq's next dividend payment will be US$0.47 per share, on the back of last year when the company paid a total of US$1.88 to shareholders. Last year's total dividend payments show that Nasdaq has a trailing yield of 1.7% on the current share price of $110.5. 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 investigate whether Nasdaq can afford its dividend, and if the dividend could grow.
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. Nasdaq paid out a comfortable 39% of its profit last year.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Nasdaq's earnings per share have risen 14% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Nasdaq has delivered an average of 17% per year annual increase in its dividend, based on the past eight years of dividend payments. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
Should investors buy Nasdaq for the upcoming dividend? Companies like Nasdaq that are growing rapidly and paying out a low fraction of earnings, are usually reinvesting heavily in their business. This is one of the most attractive investment combinations under this analysis, as it can create substantial value for investors over the long run. We think this is a pretty attractive combination, and would be interested in investigating Nasdaq more closely.
In light of that, while Nasdaq has an appealing dividend, it's worth knowing the risks involved with this stock. For example, we've found 1 warning sign for Nasdaq that we recommend you consider before investing in the business.
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.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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