Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that RTX A/S (CPH:RTX) is about to go ex-dividend in just three days. You can purchase shares before the 29th of January in order to receive the dividend, which the company will pay on the 2nd of February.
RTX's next dividend payment will be kr.2.50 per share. Last year, in total, the company distributed kr.2.50 to shareholders. Based on the last year's worth of payments, RTX stock has a trailing yield of around 1.1% on the current share price of DKK232. If you buy this business for its dividend, you should have an idea of whether RTX's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. RTX paid out a comfortable 33% of its profit last year. 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. It paid out more than half (60%) of its free cash flow in the past year, which is within an average 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 RTX earnings per share are up 5.9% per annum over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we'd take this as a tacit signal that the company's growth prospects are slowing.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last seven years, RTX has lifted its dividend by approximately 26% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Should investors buy RTX for the upcoming dividend? Earnings per share growth has been modest, and it's interesting that RTX is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of RTX's dividend merits.
While it's tempting to invest in RTX for the dividends alone, you should always be mindful of the risks involved. Be aware that RTX is showing 2 warning signs in our investment analysis, and 1 of those is potentially serious...
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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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.
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