ADT (NYSE:ADT) Has Re-Affirmed Its Dividend Of US$0.035

By
Simply Wall St
Published
May 09, 2022
NYSE:ADT
Source: Shutterstock

ADT Inc. (NYSE:ADT) will pay a dividend of US$0.035 on the 5th of July. Based on this payment, the dividend yield will be 2.0%, which is fairly typical for the industry.

See our latest analysis for ADT

ADT's Distributions May Be Difficult To Sustain

We aren't too impressed by dividend yields unless they can be sustained over time. ADT is unprofitable despite paying a dividend, and it is paying out 321% of its free cash flow. These payout levels would generally be quite difficult to keep up.

Looking forward, earnings per share is forecast to rise by 77.8% over the next year. The company seems to be going down the right path, but it will take a little bit longer than a year to cross over into profitability. Unless this can be done in short order, the dividend might be difficult to sustain.

historic-dividend
NYSE:ADT Historic Dividend May 9th 2022

ADT Doesn't Have A Long Payment History

The dividend hasn't seen any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn't that long in the grand scheme of things. There hasn't been much of a change in the dividend over the last 4. It's good to see at least some dividend growth. Yet with a relatively short dividend paying history, we wouldn't want to depend on this dividend too heavily.

The Dividend Has Limited Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. However, initial appearances might be deceiving. ADT's EPS has fallen by approximately 14% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

We're Not Big Fans Of ADT's Dividend

In summary, while it is good to see that the dividend hasn't been cut, we think that at current levels the payment isn't particularly sustainable. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. Overall, this doesn't get us very excited from an income standpoint.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. Case in point: We've spotted 3 warning signs for ADT (of which 1 shouldn't be ignored!) you should know about. Is ADT not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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