Xilinx, Inc. (NASDAQ:XLNX) is about to trade ex-dividend in the next 4 days. You will need to purchase shares before the 8th of November to receive the dividend, which will be paid on the 3rd of December.
Xilinx’s next dividend payment will be US$0.4 per share, on the back of last year when the company paid a total of US$1.5 to shareholders. Based on the last year’s worth of payments, Xilinx has a trailing yield of 1.6% on the current stock price of $92.71. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. That’s why it’s good to see Xilinx paying out a modest 39% of its earnings. 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. Thankfully its dividend payments took up just 37% of the free cash flow it generated, which is a comfortable payout ratio.
It’s positive to see that Xilinx’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?
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it’s a relief to see Xilinx earnings per share are up 9.7% per annum over the last five years. Management have been reinvested more than half of the company’s earnings within the business, and the company has been able to grow earnings with this retained capital. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Xilinx has delivered 10% dividend growth per year on average over the past ten years. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Has Xilinx got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Xilinx is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. 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 Xilinx is halfway there. Xilinx looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
Ever wonder what the future holds for Xilinx? See what the 23 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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