It looks like ADT Inc. (NYSE:ADT) is about to go ex-dividend in the next 4 days. You can purchase shares before the 10th of September in order to receive the dividend, which the company will pay on the 2nd of October.
ADT's upcoming dividend is US$0.035 a share, following on from the last 12 months, when the company distributed a total of US$0.14 per share to shareholders. Based on the last year's worth of payments, ADT stock has a trailing yield of around 2.8% on the current share price of $4.94. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's 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. ADT's dividend is not well covered by earnings, as the company lost money last year. This is not a sustainable state of affairs, so it would be worth investigating if earnings are expected to recover. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If ADT didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 23% of its free cash flow as dividends last year, which is conservatively low.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If earnings fall far enough, the company could be forced to cut its dividend. ADT reported a loss last year, but at least the general trend suggests its income has been improving over the past five years. Even so, an unprofitable company whose business does not quickly recover is usually not a good candidate for dividend investors.
Given that ADT has only been paying a dividend for a year, there's not much of a past history to draw insight from.
We update our analysis on ADT every 24 hours, so you can always get the latest insights on its financial health, here.
The Bottom Line
Is ADT worth buying for its dividend? It's hard to get used to ADT paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Overall, it's hard to get excited about ADT from a dividend perspective.
Curious what other investors think of ADT? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
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.
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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. Thank you for reading.