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The board of Applied Materials, Inc. (NASDAQ:AMAT) has announced that it will be increasing its dividend on the 16th of June to US$0.26. Despite this raise, the dividend yield of 0.9% is only a modest boost to shareholder returns.
Applied Materials' Payment Has Solid Earnings Coverage
While yield is important, another factor to consider about a company's dividend is whether the current payout levels are feasible. However, Applied Materials' earnings easily cover the dividend. This means that most of what the business earns is being used to help it grow.
The next year is set to see EPS grow by 16.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 13% by next year, which is in a pretty sustainable range.
Applied Materials Has A Solid Track Record
The company has an extended history of paying stable dividends. The dividend has gone from US$0.32 in 2012 to the most recent annual payment of US$1.04. This means that it has been growing its distributions at 13% per annum over that time. Rapidly growing dividends for a long time is a very valuable feature for an income stock.
The Dividend Looks Likely To Grow
The company's investors will be pleased to have been receiving dividend income for some time. We are encouraged to see that Applied Materials has grown earnings per share at 30% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
We Really Like Applied Materials' Dividend
In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. For example, we've picked out 1 warning sign for Applied Materials that investors should know about before committing capital to this stock. Looking for more high-yielding dividend ideas? Try our collection of 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.