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 Skyworks Solutions, Inc. (NASDAQ:SWKS) is about to go ex-dividend in just 4 days. Investors can purchase shares before the 18th of November in order to be eligible for this dividend, which will be paid on the 10th of December.
Skyworks Solutions's next dividend payment will be US$0.50 per share. Last year, in total, the company distributed US$2.00 to shareholders. Based on the last year's worth of payments, Skyworks Solutions stock has a trailing yield of around 1.4% on the current share price of $141.34. 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! As a result, readers should always check whether Skyworks Solutions has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Skyworks Solutions's payout ratio is modest, at just 38% of profit. 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 38% of its free cash flow in the past year.
It's positive to see that Skyworks Solutions's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Skyworks Solutions, with earnings per share up 2.8% on average over the last five years. Earnings per share growth in recent times has not been a standout. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, seven years ago, Skyworks Solutions has lifted its dividend by approximately 24% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
From a dividend perspective, should investors buy or avoid Skyworks Solutions? Earnings per share have been growing moderately, and Skyworks Solutions is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Skyworks Solutions is halfway there. There's a lot to like about Skyworks Solutions, and we would prioritise taking a closer look at it.
On that note, you'll want to research what risks Skyworks Solutions is facing. For example, we've found 1 warning sign for Skyworks Solutions 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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