Readers hoping to buy Motorola Solutions, Inc. (NYSE:MSI) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. You can purchase shares before the 12th of December in order to receive the dividend, which the company will pay on the 15th of January.
Motorola Solutions’s next dividend payment will be US$0.64 per share. Last year, in total, the company distributed US$2.28 to shareholders. Based on the last year’s worth of payments, Motorola Solutions has a trailing yield of 1.6% on the current stock price of $160.71. If you buy this business for its dividend, you should have an idea of whether Motorola Solutions’s dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Motorola Solutions paid out a comfortable 36% of its profit last year. A useful secondary check can be to evaluate whether Motorola Solutions generated enough free cash flow to afford its dividend. The good news is it paid out just 23% of its free cash flow in the last year.
It’s positive to see that Motorola Solutions’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.
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. For this reason, we’re glad to see Motorola Solutions’s earnings per share have risen 13% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the last eight years, Motorola Solutions has lifted its dividend by approximately 14% a year on average. It’s great to see earnings per share growing rapidly over several years, and dividends per share growing right along with it.
From a dividend perspective, should investors buy or avoid Motorola Solutions? Motorola Solutions 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. There’s a lot to like about Motorola Solutions, and we would prioritise taking a closer look at it.
Ever wonder what the future holds for Motorola Solutions? See what the 11 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Simply Wall St has no position in the stocks mentioned.
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