Dell Technologies Inc. (NYSE:DELL) stock is about to trade ex-dividend in four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible 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 Dell Technologies’ shares on or after the 18th of October will not receive the dividend, which will be paid on the 28th of October.
The company’s next dividend payment will be US$0.33 per share. Last year, in total, the company distributed US$1.32 to shareholders. Last year’s total dividend payments show that Dell Technologies has a trailing yield of 3.9% on the current share price of $33.77. If you buy this business for its dividend, you should have an idea of whether Dell Technologies’s dividend is reliable and sustainable. That’s why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Dell Technologies is paying out just 9.5% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. A useful secondary check can be to evaluate whether Dell Technologies generated enough free cash flow to afford its dividend. Luckily it paid out just 13% of its free cash flow 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.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That’s why it’s comforting to see Dell Technologies’s earnings have been skyrocketing, up 62% per annum for the past five years. Dell Technologies earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky “beep-beep”. We also like that it is reinvesting most of its profits in its business.’
Unfortunately Dell Technologies has only been paying a dividend for a year or so, so there’s not much of a history to draw insight from.
Final Takeaway
Is Dell Technologies an attractive dividend stock, or better left on the shelf? Dell Technologies has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There’s a lot to like about Dell Technologies, and we would prioritise taking a closer look at it.
While it’s tempting to invest in Dell Technologies for the dividends alone, you should always be mindful of the risks involved. To that end, you should learn about the 6 warning signs we’ve spotted with Dell Technologies (including 1 which is concerning).
A common investing mistake is buying the first interesting stock you see.
News Source: Yahoo Finance
