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 Silicon Motion Technology Corporation (NASDAQ:SIMO) is about to go ex-dividend in just four days. Investors can purchase shares before the 5th of August in order to be eligible for this dividend, which will be paid on the 20th of August.
Silicon Motion Technology’s next dividend payment will be US$0.35 per share, and in the last 12 months, the company paid a total of US$1.40 per share. Based on the last year’s worth of payments, Silicon Motion Technology stock has a trailing yield of around 3.4% on the current share price of $40.67. 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.
View our latest analysis for Silicon Motion Technology
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. Silicon Motion Technology is paying out an acceptable 56% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Silicon Motion Technology generated enough free cash flow to afford its dividend. It paid out more than half (57%) 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.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
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 earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Silicon Motion Technology’s earnings per share have been growing at 12% a year for the past five years. Silicon Motion Technology is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some 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. Since the start of our data, eight years ago, Silicon Motion Technology has lifted its dividend by approximately 11% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is Silicon Motion Technology an attractive dividend stock, or better left on the shelf? It’s good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That’s why we’re glad to see Silicon Motion Technology’s earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow – 56% and 57% respectively. All things considered, we are not particularly enthused about Silicon Motion Technology from a dividend perspective.
So while Silicon Motion Technology looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. Every company has risks, and we’ve spotted 1 warning sign for Silicon Motion Technology you should know about.
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
This article by Simply Wall St is general in nature. 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.
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