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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 Analog Devices, Inc. (NASDAQ:ADI) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. 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. Accordingly, Analog Devices investors that purchase the stock on or after the 26th of August will not receive the dividend, which will be paid on the 8th of September.
The company's next dividend payment will be US$0.69 per share. Last year, in total, the company distributed US$2.76 to shareholders. Last year's total dividend payments show that Analog Devices has a trailing yield of 1.7% on the current share price of $166.64. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Analog Devices has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Analog Devices
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Analog Devices paid out more than half (62%) of its earnings last year, which is a regular payout ratio for 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. Fortunately, it paid out only 43% of its free cash flow in the past 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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Fortunately for readers, Analog Devices's earnings per share have been growing at 14% a year for the past five years. Analog Devices has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.