Northrop Grumman Corporation (NYSE:NOC) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Readers hoping to buy Northrop Grumman Corporation (NYSE:NOC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Accordingly, Northrop Grumman investors that purchase the stock on or after the 27th of August will not receive the dividend, which will be paid on the 15th of September.
The company's next dividend payment will be US$1.57 per share. Last year, in total, the company distributed US$6.28 to shareholders. Calculating the last year's worth of payments shows that Northrop Grumman has a trailing yield of 1.7% on the current share price of $363. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Northrop Grumman can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Northrop Grumman
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Northrop Grumman has a low and conservative payout ratio of just 21% of its income after tax. A useful secondary check can be to evaluate whether Northrop Grumman generated enough free cash flow to afford its dividend. Fortunately, it paid out only 37% 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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Northrop Grumman's earnings have been skyrocketing, up 21% per annum for the past five years. Northrop Grumman is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
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, Northrop Grumman has lifted its dividend by approximately 13% a year on average. It's great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
To Sum It Up
Is Northrop Grumman an attractive dividend stock, or better left on the shelf? Northrop Grumman 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. It's a promising combination that should mark this company worthy of closer attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we've discovered 3 warning signs for Northrop Grumman (1 is a bit unpleasant!) that you ought to be aware of before buying the shares.
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.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
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