Rockwell Automation, Inc. (NYSE:ROK) Passed Our Checks, And It's About To Pay A US$1.25 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Rockwell Automation, Inc. (NYSE:ROK) is about to trade ex-dividend in the next four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase Rockwell Automation's shares on or after the 12th of August will not receive the dividend, which will be paid on the 10th of September.

The company's next dividend payment will be US$1.25 per share, and in the last 12 months, the company paid a total of US$5.00 per share. Calculating the last year's worth of payments shows that Rockwell Automation has a trailing yield of 2.0% on the current share price of US$250.77. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.

View our latest analysis for Rockwell Automation

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. Fortunately Rockwell Automation's payout ratio is modest, at just 47% of profit. 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 (53%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Rockwell Automation'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Rockwell Automation's earnings per share have been growing at 19% a year for the past five years. Rockwell Automation is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Rockwell Automation has delivered an average of 8.0% per year annual increase in its dividend, based on the past 10 years of dividend payments. 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

Has Rockwell Automation got what it takes to maintain its dividend payments? 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. Rockwell Automation looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Rockwell Automation for the dividends alone, you should always be mindful of the risks involved. For example, we've found 1 warning sign for Rockwell Automation that we recommend you consider before investing in the business.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com