Broadcom Inc. (NASDAQ:AVGO) Stock Goes Ex-Dividend In Just Four Days

Readers hoping to buy Broadcom Inc. (NASDAQ:AVGO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 19th of March will not receive the dividend, which will be paid on the 31st of March.

Broadcom's upcoming dividend is US$3.60 a share, following on from the last 12 months, when the company distributed a total of US$14.40 per share to shareholders. Looking at the last 12 months of distributions, Broadcom has a trailing yield of approximately 3.2% on its current stock price of $451.17. If you buy this business for its dividend, you should have an idea of whether Broadcom's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.

Check out our latest analysis for Broadcom

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. Broadcom distributed an unsustainably high 151% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Thankfully its dividend payments took up just 46% of the free cash flow it generated, which is a comfortable payout ratio.

It's good to see that while Broadcom's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Broadcom's earnings per share have risen 11% per annum over the last five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Broadcom has delivered 48% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

The Bottom Line

Should investors buy Broadcom for the upcoming dividend? It's good to see earnings per share growing and low cashflow payout ratio, although we're uncomfortable with Broadcom's paying out such a high percentage of its profit. In summary, while it has some positive characteristics, we're not inclined to race out and buy Broadcom today.

While it's tempting to invest in Broadcom for the dividends alone, you should always be mindful of the risks involved. Be aware that Broadcom is showing 4 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

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This article by Simply Wall St is general in nature. 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.
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