- Oops!Something went wrong.Please try again later.
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Monolithic Power Systems, Inc. (NASDAQ:MPWR) is about to go ex-dividend in just three days. Investors can purchase shares before the 30th of March in order to be eligible for this dividend, which will be paid on the 15th of April.
Monolithic Power Systems's next dividend payment will be US$0.60 per share. Last year, in total, the company distributed US$2.00 to shareholders. Calculating the last year's worth of payments shows that Monolithic Power Systems has a trailing yield of 0.7% on the current share price of $331.58. 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 check whether the dividend payments are covered, and if earnings are growing.
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. Monolithic Power Systems is paying out an acceptable 55% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Fortunately, it paid out only 42% 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.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's comforting to see Monolithic Power Systems's earnings have been skyrocketing, up 33% per annum for the past five years. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Monolithic Power Systems could have strong prospects for future increases to the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Monolithic Power Systems has delivered an average of 22% per year annual increase in its dividend, based on the past seven years of dividend payments. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Should investors buy Monolithic Power Systems for the upcoming dividend? We like Monolithic Power Systems's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Monolithic Power Systems 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. Case in point: We've spotted 2 warning signs for Monolithic Power Systems you should be aware of.
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.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.