There's A Lot To Like About Applied Materials' (NASDAQ:AMAT) Upcoming US$0.24 Dividend

By
Simply Wall St
Published
August 20, 2021
NasdaqGS:AMAT
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Applied Materials, Inc. (NASDAQ:AMAT) stock is about to trade ex-dividend in 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 important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Thus, you can purchase Applied Materials' shares before the 25th of August in order to receive the dividend, which the company will pay on the 16th of September.

The company's next dividend payment will be US$0.24 per share, and in the last 12 months, the company paid a total of US$0.96 per share. Last year's total dividend payments show that Applied Materials has a trailing yield of 0.7% on the current share price of $129.2. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Applied Materials has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Applied Materials

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Applied Materials is paying out just 18% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Applied Materials generated enough free cash flow to afford its dividend. It paid out 19% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Applied Materials'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.

historic-dividend
NasdaqGS:AMAT Historic Dividend August 20th 2021

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Applied Materials's earnings have been skyrocketing, up 34% per annum for the past five years. Applied Materials looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Applied Materials has increased its dividend at approximately 13% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

From a dividend perspective, should investors buy or avoid Applied Materials? Applied Materials has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.

While it's tempting to invest in Applied Materials for the dividends alone, you should always be mindful of the risks involved. For example - Applied Materials has 2 warning signs we think you should be aware of.

If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.

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