Why It Might Not Make Sense To Buy RTX Corporation (NYSE:RTX) For Its Upcoming Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see RTX Corporation (NYSE:RTX) is about to trade ex-dividend in the next two days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Meaning, you will need to purchase RTX's shares before the 21st of February to receive the dividend, which will be paid on the 20th of March.

The company's next dividend payment will be US$0.63 per share, on the back of last year when the company paid a total of US$2.52 to shareholders. Based on the last year's worth of payments, RTX has a trailing yield of 2.1% on the current stock price of US$122.41. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for RTX

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. RTX paid out more than half (69%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether RTX generated enough free cash flow to afford its dividend. It paid out 82% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.

It's positive to see that RTX'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?

Companies with falling earnings are riskier for dividend shareholders. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. So we're not too excited that RTX's earnings are down 2.7% a year over the past five years.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. RTX has delivered 0.7% dividend growth per year on average over the past 10 years.

Final Takeaway

Should investors buy RTX for the upcoming dividend? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Bottom line: RTX has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Although, if you're still interested in RTX and want to know more, you'll find it very useful to know what risks this stock faces. To help with this, we've discovered 2 warning signs for RTX (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.