Yahoo Finance Don't Race Out To Buy Raytheon Technologies Corporation (NYSE:RTX) Just Because It's Going Ex-Dividend
Raytheon Technologies Corporation (NYSE:RTX) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Raytheon Technologies' shares before the 18th of May in order to receive the dividend, which the company will pay on the 15th of June.
The company's upcoming dividend is US$0.59 a share, following on from the last 12 months, when the company distributed a total of US$2.36 per share to shareholders. Looking at the last 12 months of distributions, Raytheon Technologies has a trailing yield of approximately 2.5% on its current stock price of $95.99. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Raytheon Technologies can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Raytheon Technologies
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Raytheon Technologies is paying out an acceptable 58% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. The company paid out 109% of its free cash flow over the last year, which we think is outside the ideal range for most businesses. Cash flows are usually much more volatile than earnings, so this could be a temporary effect - but we'd generally want to look more closely here.
While Raytheon Technologies's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Cash is king, as they say, and were Raytheon Technologies to repeatedly pay dividends that aren't well covered by cashflow, we would consider this a warning sign.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Raytheon Technologies's 8.0% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Raytheon Technologies has delivered 1.0% dividend growth per year on average over the past 10 years.
The Bottom Line
Should investors buy Raytheon Technologies for the upcoming dividend? Raytheon Technologies had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
So if you're still interested in Raytheon Technologies despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. In terms of investment risks, we've identified 2 warning signs with Raytheon Technologies and understanding them should be part of your investment process.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.
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