Don't Buy QUALCOMM Incorporated (NASDAQ:QCOM) For Its Next Dividend Without Doing These Checks

NASDAQ:QCOM) is about to go ex-dividend in just four days. You can purchase shares before the 2nd of September in order to receive the dividend, which the company will pay on the 24th of September.” data-reactid=”28″>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 QUALCOMM Incorporated (NASDAQ:QCOM) is about to go ex-dividend in just four days. You can purchase shares before the 2nd of September in order to receive the dividend, which the company will pay on the 24th of September.

QUALCOMM’s next dividend payment will be US$0.65 per share, on the back of last year when the company paid a total of US$2.60 to shareholders. Based on the last year’s worth of payments, QUALCOMM has a trailing yield of 2.2% on the current stock price of $116.02. 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! As a result, readers should always check whether QUALCOMM has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for QUALCOMM ” data-reactid=”30″> Check out our latest analysis for QUALCOMM

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. QUALCOMM paid out 105% of its earnings, which is more than we’re comfortable with, unless there are mitigating circumstances. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Dividends consumed 73% of the company’s free cash flow last year, which is within a normal range for most dividend-paying organisations.

It’s good to see that while QUALCOMM’s dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we’d view this as a warning sign. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.

here to see the company’s payout ratio, plus analyst estimates of its future dividends.” data-reactid=”37″>Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.

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Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Readers will understand then, why we’re concerned to see QUALCOMM’s earnings per share have dropped 12% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. QUALCOMM has delivered an average of 14% per year annual increase in its dividend, based on the past 10 years of dividend payments. The only way to pay higher dividends when earnings are shrinking is either to pay out a larger percentage of profits, spend cash from the balance sheet, or borrow the money. QUALCOMM is already paying out a high percentage of its income, so without earnings growth, we’re doubtful of whether this dividend will grow much in the future.

To Sum It Up

Has QUALCOMM got what it takes to maintain its dividend payments? Earnings per share have been in decline, which is not encouraging. Additionally, QUALCOMM is paying out quite a high percentage of its earnings, and more than half its cash flow, so it’s hard to evaluate whether the company is reinvesting enough in its business to improve its situation. Overall it doesn’t look like the most suitable dividend stock for a long-term buy and hold investor.