Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Maxim Integrated Products, Inc. (NASDAQ:MXIM) is about to go ex-dividend in just 4 days. If you purchase the stock on or after the 28th of August, you won't be eligible to receive this dividend, when it is paid on the 13th of September.
Maxim Integrated Products's next dividend payment will be US$0.48 per share. Last year, in total, the company distributed US$1.92 to shareholders. Looking at the last 12 months of distributions, Maxim Integrated Products has a trailing yield of approximately 3.5% on its current stock price of $54.61. 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 Maxim Integrated Products can afford its dividend, and if the dividend could grow.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Maxim Integrated Products paid out 62% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. It paid out more than half (64%) of its free cash flow in the past year, which is within an average range for most companies.
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.
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. For this reason, we're glad to see Maxim Integrated Products's earnings per share have risen 19% per annum over the last five years. Maxim Integrated Products is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Maxim Integrated Products has increased its dividend at approximately 9.1% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
The Bottom Line
Is Maxim Integrated Products an attractive dividend stock, or better left on the shelf? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Maxim Integrated Products's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 62% and 64% respectively. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Maxim Integrated Products's dividend merits.
Wondering what the future holds for Maxim Integrated Products? See what the 19 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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