Motorola Solutions (NYSE:MSI) Could Be A Buy For Its Upcoming Dividend

Motorola Solutions, Inc. (NYSE:MSI) 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. Accordingly, Motorola Solutions investors that purchase the stock on or after the 14th of June will not receive the dividend, which will be paid on the 15th of July.

The company's next dividend payment will be US$0.98 per share, on the back of last year when the company paid a total of US$3.92 to shareholders. Based on the last year's worth of payments, Motorola Solutions stock has a trailing yield of around 1.1% on the current share price of US$371.06. 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 investigate whether Motorola Solutions can afford its dividend, and if the dividend could grow.

See our latest analysis for Motorola Solutions

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Motorola Solutions paying out a modest 45% of its earnings. A useful secondary check can be to evaluate whether Motorola Solutions generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 28% of the free cash flow it generated, which is a comfortable payout ratio.

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.

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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. This is why it's a relief to see Motorola Solutions earnings per share are up 7.0% per annum over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Motorola Solutions has delivered 12% dividend growth per year on average over the past 10 years. 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.

The Bottom Line

Has Motorola Solutions got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Motorola Solutions is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but Motorola Solutions is being conservative with its dividend payouts and could still perform reasonably over the long run. There's a lot to like about Motorola Solutions, and we would prioritise taking a closer look at it.

So while Motorola Solutions looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 3 warning signs for Motorola Solutions that we recommend you consider before investing in the business.

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.