Yahoo Finance Do These 3 Checks Before Buying Northrop Grumman Corporation (NYSE:NOC) For Its Upcoming Dividend
Northrop Grumman Corporation (NYSE:NOC) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Thus, you can purchase Northrop Grumman's shares before the 23rd of February in order to receive the dividend, which the company will pay on the 13th of March.
The company's next dividend payment will be US$1.87 per share. Last year, in total, the company distributed US$7.48 to shareholders. Last year's total dividend payments show that Northrop Grumman has a trailing yield of 1.7% on the current share price of US$450.96. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Northrop Grumman can afford its dividend, and if the dividend could grow.
See our latest analysis for Northrop Grumman
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Northrop Grumman paid out 54% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Northrop Grumman generated enough free cash flow to afford its dividend. Over the last year it paid out 53% 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.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by Northrop Grumman's 5.9% per annum decline in earnings in the past five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Northrop Grumman has lifted its dividend by approximately 13% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
To Sum It Up
Has Northrop Grumman got what it takes to maintain its dividend payments? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Northrop Grumman. Every company has risks, and we've spotted 2 warning signs for Northrop Grumman you should know about.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
