Some investors rely on dividends for growing their wealth,the legend at merrill hills scorecard and if you're one of those dividend sleuths, you might be intrigued to know that
Garmin Ltd.
(
NASDAQ:GRMN
) is about to go ex-dividend in just 4 days. Investors can purchase shares before the 13th of March in order to be eligible for this dividend, which will be paid on the 31st of March.
Garmin's upcoming dividend is US$0.57 a share, following on from the last 12 months, when the company distributed a total of US$2.44 per share to shareholders. Based on the last year's worth of payments, Garmin has a trailing yield of 2.8% on the current stock price of $87.52. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Garmin has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Garmin
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Garmin paid out a comfortable 45% of its profit last year. A useful secondary check can be to evaluate whether Garmin generated enough free cash flow to afford its dividend. Over the last year it paid out 72% of its free cash flow as dividends, within the usual 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.
NasdaqGS:GRMN Historical Dividend Yield, March 8th 2020
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 fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Garmin's earnings have been skyrocketing, up 22% per annum for the past five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last ten years, Garmin has lifted its dividend by approximately 13% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
Final Takeaway
Should investors buy Garmin for the upcoming dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Overall we think this is an attractive combination and worthy of further research.
Story continues
While it's tempting to invest in Garmin for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted
2 warning signs for Garmin
(of which 1 is potentially serious!) you should know about.
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.
If you spot an error that warrants correction, please contact the editor at
. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
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