NVE Corporation (NASDAQ:NVEC) Pays A US$1.00 Dividend In Just Four Days
Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see NVE Corporation (NASDAQ:NVEC) is about to trade ex-dividend in the next 4 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Therefore, if you purchase NVE's shares on or after the 28th of July, you won't be eligible to receive the dividend, when it is paid on the 31st of August.
The company's next dividend payment will be US$1.00 per share, and in the last 12 months, the company paid a total of US$4.00 per share. Based on the last year's worth of payments, NVE stock has a trailing yield of around 4.9% on the current share price of $81.19. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! So we need to investigate whether NVE can afford its dividend, and if the dividend could grow.
Check out our latest analysis for NVE
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 84% 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. It could become a concern if earnings started to decline. 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. It paid out 97% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
While NVE's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to NVE's ability to maintain its dividend.
Click here to see how much of its profit NVE paid out over the last 12 months.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, NVE's earnings per share have been growing at 11% a year for the past five years. Earnings have been growing at a decent rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. It looks like the NVE dividends are largely the same as they were eight years ago.
To Sum It Up
Should investors buy NVE for the upcoming dividend? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 97% of its cashflow, which is uncomfortably high. To summarise, NVE looks okay on this analysis, although it doesn't appear a stand-out opportunity.
If you want to look further into NVE, it's worth knowing the risks this business faces. Every company has risks, and we've spotted 2 warning signs for NVE you should know about.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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