Iridium Communications Inc. (NASDAQ:IRDM) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Iridium Communications Inc. (NASDAQ:IRDM) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Therefore, if you purchase Iridium Communications' shares on or after the 16th of December, you won't be eligible to receive the dividend, when it is paid on the 31st of December.

The company's next dividend payment will be US$0.14 per share, and in the last 12 months, the company paid a total of US$0.56 per share. Based on the last year's worth of payments, Iridium Communications has a trailing yield of 1.8% on the current stock price of US$30.29. If you buy this business for its dividend, you should have an idea of whether Iridium Communications'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 Iridium Communications

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Iridium Communications is paying out an acceptable 57% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Iridium Communications generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow last year.

It's positive to see that Iridium Communications'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?

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. That's why it's comforting to see Iridium Communications's earnings have been skyrocketing, up 78% per annum for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.

Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past two years, Iridium Communications has increased its dividend at approximately 3.8% a year on average. Earnings per share have been growing much quicker than dividends, potentially because Iridium Communications is keeping back more of its profits to grow the business.

The Bottom Line

Is Iridium Communications worth buying for its dividend? We like Iridium Communications's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. Iridium Communications looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

In light of that, while Iridium Communications has an appealing dividend, it's worth knowing the risks involved with this stock. Case in point: We've spotted 1 warning sign for Iridium Communications you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

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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.