NXP Semiconductors AG (NASDAQ:NXPI) the stock is set to trade ex-dividend in 4 days. The ex-dividend date is usually one business day before the record date which is the latest date by which you must be present on the books of the company as a shareholder in order to receive the dividend. The ex-dividend date is an important date to know because any purchase of shares made on or after this date may mean late settlement which does not appear on the record date. This means that investors who buy shares of NXP Semiconductors on or after June 14 will not receive the dividend, which will be paid on July 6.
The company’s next dividend payment will be $0.84 per share. Last year, in total, the company distributed US$3.38 to shareholders. Calculating the value of last year’s payouts shows that NXP Semiconductors has a 1.9% yield on the current stock price of $177.07. We love to see companies pay out a dividend, but it’s also important to make sure that laying the golden eggs doesn’t kill our golden hen! Therefore, readers should always check whether NXP Semiconductors was able to increase its dividend or if the dividend could be reduced.
Check out our latest analysis for NXP Semiconductors
Dividends are usually paid out of company earnings, so if a company pays out more than it has earned, its dividend is usually at risk of being reduced. NXP Semiconductors shed a comfortable 31% of its profit last year. Still, cash flow is usually more important than earnings in assessing the sustainability of dividends, so we always need to check whether the company has generated enough cash to pay its dividend. Fortunately, its dividend payouts only accounted for 28% of the free cash flow it generated, which is a comfortable payout ratio.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This generally suggests that the dividend is sustainable, as long as earnings don’t drop precipitously.
Click here to see the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have earnings and dividends increased?
Companies with strong growth prospects are generally the best dividend payers because it is easier to increase dividends when earnings per share improve. If earnings fall enough, the company could be forced to cut its dividend. It is encouraging to see that NXP Semiconductors has grown its revenue rapidly, growing 70% annually over the past five years. Earnings per share have grown very rapidly and the company is paying out a relatively small percentage of its earnings and cash flow. Companies with rising earnings and low payout rates are often the best long-term dividend-paying stocks because the company can both increase its earnings and increase the percentage of earnings it pays out, essentially multiplying the dividend.
Another key way to gauge a company’s dividend outlook is to measure its historical rate of dividend growth. Over the past four years, NXP Semiconductors has increased its dividend by about 36% per year on average. It’s exciting to see that earnings and dividends per share have grown rapidly over the past few years.
From a dividend perspective, should investors buy or avoid NXP Semiconductors? We like that NXP Semiconductors 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 the growth of its business, while the conservative payout ratio also implies a reduced risk of dividend reduction in the future. It’s a promising combination that should mark this company worthy of attention.
Although it is tempting to invest in NXP Semiconductors just for the dividends, you should always be aware of the risks involved. Our analysis shows 2 warning signs for NXP Semiconductors and you should be aware of this before buying stocks.
As a general rule, we don’t recommend simply buying the first dividend-paying stock you see. Here is a curated list of attractive stocks that are strong dividend payers.
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This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts only using unbiased methodology and our articles are not intended to be financial advice. It is not a recommendation to buy or sell stocks and does not take into account your objectives or financial situation. Our goal is to bring you targeted long-term analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price-sensitive companies or qualitative materials. Simply Wall St has no position in the stocks mentioned.