Microchip Technology Incorporated ((NASDAQ: MCHP) will be traded ex dividend for the next 4 days. The ex-dividend day is one day before the cut-off date on which shareholders must be on the company’s books to receive a dividend. The ex-dividend day is important as the settlement process spans two full business days. If you miss this date, you will not appear on the company’s books on the deadline. This means that investors who buy shares of Microchip Technology on or after May 20th will not receive a dividend, which will be paid on June 4th.
The company’s next dividend payment will be $ 0.41 per share, after the company paid a total of $ 1.65 to shareholders last year. Last year’s total dividend payments show that Microchip Technology has a trailing return of 1.1% versus its current share price of $ 145.47. Dividends are an important source of income for many shareholders, but the health of the company is critical to sustaining those dividends. So we have to check whether the dividend payments are covered and whether profits are increasing.
Dividends are usually paid out of corporate profits. So when a company pays out more than it earns, its dividend is usually at greater risk of being cut. Microchip Technology paid an unsustainably high 111% of its profits to shareholders as dividends last year. Without a more sustainable payment behavior, the dividend appears precarious.
Have profits and dividends grown?
Companies with falling earnings are difficult from a dividend perspective. If earnings plummet enough, the company could be forced to cut its dividend. Because of this, it’s not ideal to see Microchip Technology’s earnings per share fall 3.3% a year over the past five years.
Most investors judge a company’s dividend prospects primarily by its historical dividend growth rate. For the past 10 years, Microchip Technology has increased its dividend an average of 1.9% per year.
The bottom line
Is it worth buying Microchip Technology for its dividend? Earnings per share are declining, and Microchip Technology is paying what we think is an uncomfortably high percentage of its earnings as dividends. It’s not that we hate the business, but we do believe these traits are undesirable for investors looking for a dependable dividend stock to own over the long term. This isn’t a very appealing combination of traits, and we’re just not that interested in this company’s dividend.
However, if you are still viewing microchip technology as an investment, knowing the risks this stock faces is beneficial. Our analysis shows 5 warning labels for microchip technology We strongly encourage you to take a look before investing in the company.
However, we wouldn’t recommend buying just the first dividend stock you see. Here is a list of interesting dividend stocks with a yield greater than 2% and an upcoming dividend.
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This article from Simply Wall St is of a general nature. It is not a recommendation to buy or sell stocks and does not take into account your goals or your financial situation. We want to provide you with a long-term, focused analysis based on fundamental data. Note that our analysis may not take into account the latest price sensitive company announcements or quality materials. Simply Wall St has no position in the stocks mentioned.
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