ADT (NYSE:ADT) Will Pay A Larger Dividend Than Last Year At $0.055

ADT Inc. (NYSE:ADT) has announced that it will be increasing its dividend from last year's comparable payment on the 4th of April to $0.055. This will take the annual payment to 2.9% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for ADT

ADT's Dividend Is Well Covered By Earnings

A big dividend yield for a few years doesn't mean much if it can't be sustained. Despite not being profitable, ADT is paying out most of its free cash flow as a dividend. Generally paying a dividend without making profits isn't a great idea and we are also worried that there is limited reinvestment into the business.

According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 53%, which makes us pretty comfortable with the sustainability of the dividend.

ADT Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from an annual total of $0.14 in 2018 to the most recent total annual payment of $0.22. This works out to be a compound annual growth rate (CAGR) of approximately 7.8% a year over that time. The dividend has been growing as a reasonable rate, which we like. However, investors will probably want to see a longer track record before they consider ADT to be a consistent dividend paying stock.

The Company Could Face Some Challenges Growing The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. ADT has seen EPS rising for the last five years, at 42% per annum. The company hasn't been turning a profit, but it running in the right direction. If this trajectory continues and the company can turn a profit soon, it could bode well for the dividend going forward.

ADT's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think ADT will make a great income stock. Strong earnings growth means ADT has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. 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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