STMicroelectronics N.V. (EPA:STM) stock is about to trade ex-dividend in 3 days time. Ex-dividend means that investors that purchase the stock on or after the 16th of September will not receive this dividend, which will be paid on the 18th of September.
STMicroelectronics’s next dividend payment will be US$0.06 per share. Last year, in total, the company distributed US$0.24 to shareholders. Based on the last year’s worth of payments, STMicroelectronics has a trailing yield of 1.2% on the current stock price of €18.08. 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 investigate whether STMicroelectronics can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. STMicroelectronics paid out just 19% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 52% of its free cash flow as dividends, within the usual range for most companies.
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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It’s encouraging to see STMicroelectronics has grown its earnings rapidly, up 59% a year for the past five years.
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, ten years ago, STMicroelectronics has lifted its dividend by approximately 7.2% a year on average. We’re glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Should investors buy STMicroelectronics for the upcoming dividend? From a dividend perspective, we’re encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. STMicroelectronics looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
Wondering what the future holds for STMicroelectronics? See what the 19 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
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If you spot an error that warrants correction, please contact the editor at email@example.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.