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Why You Might Be Interested In Analog Devices, Inc. (NASDAQ:ADI) For Its Upcoming Dividend

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Simply Wall St
·3 min read
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Analog Devices, Inc. (NASDAQ:ADI) is about to trade ex-dividend in the next four days. You can purchase shares before the 25th of February in order to receive the dividend, which the company will pay on the 9th of March.

Analog Devices's next dividend payment will be US$0.69 per share, and in the last 12 months, the company paid a total of US$2.76 per share. Last year's total dividend payments show that Analog Devices has a trailing yield of 1.7% on the current share price of $163.8. 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.

View our latest analysis for Analog Devices

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Analog Devices is paying out an acceptable 67% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Analog Devices generated enough free cash flow to afford its dividend. Fortunately, it paid out only 48% 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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Analog Devices's earnings per share have been growing at 11% a year for the past five years. Analog Devices is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past 10 years, Analog Devices has increased its dividend at approximately 12% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

The Bottom Line

Should investors buy Analog Devices for the upcoming dividend? Analog Devices's growing earnings per share and conservative payout ratios make for a decent combination. We also like that it paid out a lower percentage of its cash flow. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Analog Devices for the dividends alone, you should always be mindful of the risks involved. For example, we've found 2 warning signs for Analog Devices that we recommend you consider before investing in the business.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.