Dividend Investors: Don't Be Too Quick To Buy Raytheon Technologies Corporation (NYSE:RTX) For Its Upcoming Dividend
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 Raytheon Technologies Corporation (NYSE:RTX) is about to go ex-dividend in just two days. If you purchase the stock on or after the 12th of November, you won’t be eligible to receive this dividend, when it is paid on the 17th of December.
Raytheon Technologies’s next dividend payment will be US$0.47 per share, and in the last 12 months, the company paid a total of US$1.90 per share. Looking at the last 12 months of distributions, Raytheon Technologies has a trailing yield of approximately 3.2% on its current stock price of $58.56. If you buy this business for its dividend, you should have an idea of whether Raytheon Technologies’s dividend is reliable and sustainable. As a result, readers should always check whether Raytheon Technologies has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Raytheon Technologies
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Raytheon Technologies paid a dividend last year despite being unprofitable. This might be a one-off event, but it’s not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If cash earnings don’t cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. It paid out 105% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings – expenses don’t pay themselves – so it’s not great to see it paying out so much of its cash flow.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Raytheon Technologies was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Raytheon Technologies has lifted its dividend by approximately 1.1% a year on average.
We update our analysis on Raytheon Technologies every 24 hours, so you can always get the latest insights on its financial health, here.
To Sum It Up
Should investors buy Raytheon Technologies for the upcoming dividend? We’re a bit uncomfortable with it paying a dividend while being loss-making, especially given that the dividend was not well covered by free cash flow. It’s not the most attractive proposition from a dividend perspective, and we’d probably give this one a miss for now.
So if you’re still interested in Raytheon Technologies despite it’s poor dividend qualities, you should be well informed on some of the risks facing this stock. To that end, you should learn about the 3 warning signs we’ve spotted with Raytheon Technologies (including 2 which are a bit concerning).
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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