Is It Smart To Buy Lam Research Corporation (NASDAQ:LRCX) Before It Goes Ex-Dividend?
Lam Research Corporation (NASDAQ:LRCX) stock is about to trade ex-dividend in four days. Investors can purchase shares before the 29th of September in order to be eligible for this dividend, which will be paid on the 14th of October.
Lam Research's upcoming dividend is US$1.30 a share, following on from the last 12 months, when the company distributed a total of US$4.60 per share to shareholders. Based on the last year's worth of payments, Lam Research has a trailing yield of 1.6% on the current stock price of $317.02. If you buy this business for its dividend, you should have an idea of whether Lam Research's dividend is reliable and sustainable. So we need to investigate whether Lam Research can afford its dividend, and if the dividend could grow.
View our latest analysis for Lam Research
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. That's why it's good to see Lam Research paying out a modest 30% of its earnings. A useful secondary check can be to evaluate whether Lam Research generated enough free cash flow to afford its dividend. Fortunately, it paid out only 34% 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?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That's why it's comforting to see Lam Research's earnings have been skyrocketing, up 31% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. 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.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last six years, Lam Research has lifted its dividend by approximately 39% 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.
Final Takeaway
Is Lam Research worth buying for its dividend? Lam Research 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. Lam Research looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 2 warning signs for Lam Research 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.
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.
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