It looks like Silicon motion technology company (NASDAQ: SIMO) is set to be ex-dividend within the next four days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders must be on the books of the company to receive a dividend. The ex-dividend date is important because any share transaction must have been settled before the registration date to be eligible for a dividend. This means that investors who buy shares of Silicon Motion Technology on or after November 9 will not receive the dividend, which will be paid on November 24.
The company’s upcoming dividend is US $ 0.50 per share, following the past 12 months when the company has distributed a total of US $ 2.00 per share to shareholders. Calculating the value of last year’s payouts shows Silicon Motion Technology has a 2.8% return on the current stock price of $ 70.66. Dividends are a major contributor to returns on investment for long-term holders, but only if the dividend continues to be paid. It is necessary to see if the dividend is covered by the profits and if it increases.
Check out our latest review for Silicon Motion technology
If a company pays more dividends than it has earned, then the dividend could become unsustainable – which is not an ideal situation. Fortunately, Silicon Motion Technology’s payout ratio is modest, at just 35% of profits. Yet cash flow is still more important than earnings in valuing a dividend, so we need to see if the company has generated enough cash to pay for its distribution. It distributed 46% of its free cash flow in the form of dividends, a comfortable level of distribution for most companies.
It is positive to see that Silicon Motion Technology’s dividend is covered by both earnings and cash flow, as this is usually a sign that the dividend is sustainable, and a lower payout ratio usually suggests a higher. margin of safety before the dividend is cut.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have profits and dividends increased?
Companies with strong growth prospects generally make the best dividend payers because dividends are easier to grow when earnings per share improve. If business goes into recession and the dividend is reduced, the company could experience a sharp drop in value. Luckily for readers, Silicon Motion Technology’s earnings per share have grown 18% per year for the past five years. The company managed to increase its profits at a rapid rate, while reinvesting most of the profits back into the company. Fast-growing companies that reinvest heavily are attractive from a dividend standpoint, especially since they can often increase the payout ratio later.
Another key way to measure a company’s dividend outlook is to measure its historical rate of dividend growth. Since our data began nine years ago, Silicon Motion Technology has increased its dividend by about 14% per year on average. Both earnings per share and dividends have been rising rapidly lately, which is great to see.
The bottom line
Should investors buy Silicon Motion Technology for the next dividend? We like the fact that Silicon Motion Technology is increasing its earnings per share while simultaneously paying out a small percentage of its earnings and cash flow. These characteristics suggest that the company is reinvesting in growing its business, while the prudent payout ratio also implies a reduced risk of dividend reduction in the future. There is a lot to like about Silicon Motion technology, and we would prioritize taking a closer look.
Although it is tempting to invest in Silicon Motion technology for dividends only, you should always be aware of the risks involved. For example – Silicon Motion Technology has 1 warning sign we think you should be aware.
However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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