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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Infineon Technologies AG (ETR:IFX) is about to trade ex-dividend in the next four 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. 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. Accordingly, Infineon Technologies investors that purchase the stock on or after the 21st of February will not receive the dividend, which will be paid on the 25th of February.
The company's next dividend payment will be €0.35 per share, on the back of last year when the company paid a total of €0.35 to shareholders. Based on the last year's worth of payments, Infineon Technologies has a trailing yield of 0.9% on the current stock price of €37.55. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! We need to see whether the dividend is covered by earnings and if it's growing.
Check out our latest analysis for Infineon Technologies
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. Fortunately Infineon Technologies's payout ratio is modest, at just 33% of profit. 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. Over the last year it paid out 68% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that Infineon Technologies'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?
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. With that in mind, we're encouraged by the steady growth at Infineon Technologies, with earnings per share up 7.1% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.