Regular readers will know that we love our dividend at Simply Wall St, which is why it’s exciting to watch Microchip Technology Incorporated (NASDAQ:MCHP) is trading ex-dividend for the next 4 days. The ex-dividend date is one banking day before a company’s registration date, which is the date on which the company determines which shareholders are entitled to receive dividends. It is important to pay attention to the ex-dividend date because any trade in the stock must be settled on or before the record date. Therefore, Microchip Technology investors who purchase the stock on or after November 21st will not receive the dividend, which will be paid on December 6th.
The company’s future dividend is USD 0.44 per share. share, after the last 12 months, when the company distributed a total of USD 1.76 per share. share to the shareholders. Calculating last year’s payouts shows that Microchip Technology has a trailing yield of 2.1% at the current share price of $82.5. Dividends are a significant contributor to investment returns for long-term owners, but only if the dividend continues to be paid. So we need to examine whether Microchip Technology can afford its dividend and whether the dividend can grow.
See our latest analysis for Microchip Technology
Dividends are typically paid out of the company’s income, so if a company pays out more than it earned, its dividend usually has a higher risk of being cut. That’s why it’s good to see Microchip Technology paying out a modest 32% of its earnings. That said, even highly profitable companies sometimes don’t generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by the cash flow. Fortunately, it only paid out 26% of its free cash flow in the past year.
It’s positive to see that Microchip Technology’s dividend is covered by both profit and cash flow, as this is generally a sign that the dividend is sustainable, and a lower payout ratio usually indicates a larger margin of safety before the dividend is cut.
Click here to view the company’s payout ratio plus analyst estimates for its future earnings.
Have earnings and dividends grown?
Companies with strong growth prospects are usually the best dividend payers because it’s easier to grow dividends when earnings per share increase. share improves. Investors love dividends, so if earnings fall and dividends are cut, you can expect a stock to sell off sharply at the same time. That’s why it’s comforting to see Microchip Technology’s earnings skyrocket, up 53% annually over the past five years. Microchip Technology pays out less than half of its earnings and cash flow while growing earnings per share. stock at a rapid clip. This is a very favorable combination that can often lead to dividends multiplying over the long term if earnings grow and the company pays out a higher percentage of its earnings.
Many investors will evaluate a company’s dividend performance by assessing how much dividend payments have changed over time. Over the past 10 years, Microchip Technology has raised its dividend by approximately 9.5% per year on average. We are pleased to see the dividend rise alongside earnings over a number of years, which may be a sign that the company intends to share the growth with shareholders.
Should Investors Buy Microchip Technology for the Upcoming Dividend? Microchip Technology has grown earnings at a rapid pace and has a conservatively low payout ratio, meaning it is reinvesting heavily in its business; an excellent combination. Overall, Microchip Technology looks solid on this analysis, and we’ll definitely consider looking into it further.
With that in mind, a critical part of thorough stock research is being aware of any risks that stocks currently face. All businesses have risks and we have seen it 2 warning signs for Microchip Technology (1 of which should not be ignored!) you should know about.
In general, we wouldn’t recommend just buying the first dividend stock you see. Here is a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is of a general nature. We only provide commentary based on historical data and analyst forecasts 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 shares and does not take into account your goals or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not take into account recent price-sensitive company announcements or qualitative material. Simply Wall St has no position in any listed stocks.