QUALCOMM Incorporated (NASDAQ:QCOM) Stock Goes Ex-Dividend In Just Two Days

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see QUALCOMM Incorporated (NASDAQ:QCOM) is about to trade ex-dividend in the next 2 days. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase QUALCOMM's shares on or after the 4th of December, you won't be eligible to receive the dividend, when it is paid on the 18th of December.

The company's next dividend payment will be US$0.89 per share, on the back of last year when the company paid a total of US$3.56 to shareholders. Based on the last year's worth of payments, QUALCOMM stock has a trailing yield of around 2.1% on the current share price of US$168.09. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether QUALCOMM has been able to grow its dividends, or if the dividend might be cut.

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If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. QUALCOMM is paying out an acceptable 69% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether QUALCOMM generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 30% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that QUALCOMM'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.

View our latest analysis for QUALCOMM

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

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're encouraged by the steady growth at QUALCOMM, with earnings per share up 2.5% on average over the last five years. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last 10 years, QUALCOMM has lifted its dividend by approximately 7.8% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

Final Takeaway

Is QUALCOMM worth buying for its dividend? Earnings per share growth has been modest and QUALCOMM paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. In summary, while it has some positive characteristics, we're not inclined to race out and buy QUALCOMM today.

So while QUALCOMM looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. Our analysis shows 1 warning sign for QUALCOMM and you should be aware of it before buying any shares.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.