Yahoo Finance InterDigital (NASDAQ:IDCC) Could Be A Buy For Its Upcoming Dividend
InterDigital, Inc. (NASDAQ:IDCC) stock is about to trade ex-dividend in 4 days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase InterDigital's shares on or after the 9th of April will not receive the dividend, which will be paid on the 24th of April.
The company's next dividend payment will be US$0.40 per share, on the back of last year when the company paid a total of US$1.60 to shareholders. Based on the last year's worth of payments, InterDigital stock has a trailing yield of around 1.7% on the current share price of US$95.84. If you buy this business for its dividend, you should have an idea of whether InterDigital's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for InterDigital
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. InterDigital is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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 good news is it paid out just 23% of its free cash flow in the last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. 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 InterDigital's earnings have been skyrocketing, up 35% per annum for the past five years. With earnings per share growing rapidly and the company sensibly reinvesting almost all of its profits within the business, InterDigital looks like a promising growth company.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, InterDigital has increased its dividend at approximately 15% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
Has InterDigital got what it takes to maintain its dividend payments? We love that InterDigital is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. It's a promising combination that should mark this company worthy of closer attention.
In light of that, while InterDigital has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 2 warning signs for InterDigital that you should be aware of before investing in their shares.
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.
