ADT (NYSE:ADT) Has Announced A Dividend Of $0.035

ADT Inc. (NYSE:ADT) has announced that it will pay a dividend of $0.035 per share on the 4th of October. This means the dividend yield will be fairly typical at 2.2%.

See our latest analysis for ADT

ADT Is Paying Out More Than It Is Earning

Solid dividend yields are great, but they only really help us if the payment is sustainable. ADT is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. This gives us some comfort about the level of the dividend payments.

Earnings per share is forecast to rise exponentially over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 129%, which is unsustainable.

ADT Doesn't Have A Long Payment History

ADT's dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The most recent annual payment of $0.14 is about the same as the annual payment 5 years ago. ADT hasn't been paying a dividend for very long, so we wouldn't get to excited about its record of growth just yet.

The Company Could Face Some Challenges Growing The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. It's encouraging to see that ADT has been growing its earnings per share at 14% a year over the past five years. It's not great that the company is not turning a profit, but the decent growth in recent years is certainly a positive sign. All is not lost, but the future of the dividend definitely rests upon the company's ability to become profitable soon.

Our Thoughts On ADT's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 1 warning sign for ADT that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.