It looks like FLIR Systems, Inc. (NASDAQ:FLIR) is about to go ex-dividend in the next 4 days. Investors can purchase shares before the 19th of November in order to be eligible for this dividend, which will be paid on the 4th of December.
FLIR Systems's next dividend payment will be US$0.17 per share, on the back of last year when the company paid a total of US$0.68 to shareholders. Based on the last year's worth of payments, FLIR Systems stock has a trailing yield of around 1.8% on the current share price of $37.32. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether FLIR Systems has been able to grow its dividends, or if the dividend might be cut.
See our latest analysis for FLIR Systems
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. FLIR Systems is paying out an acceptable 65% of its profit, a common payout level among most companies. 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. Fortunately, it paid out only 38% of its free cash flow in the past year.
It's positive to see that FLIR Systems's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're discomforted by FLIR Systems's 5.9% per annum decline in earnings in the past five years. When earnings per share fall, the maximum amount of dividends that can be paid also falls.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. FLIR Systems has delivered 11% dividend growth per year on average over the past 10 years. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.
The Bottom Line
Should investors buy FLIR Systems for the upcoming dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. To summarise, FLIR Systems looks okay on this analysis, although it doesn't appear a stand-out opportunity.
So if you want to do more digging on FLIR Systems, you'll find it worthwhile knowing the risks that this stock faces. For example - FLIR Systems has 4 warning signs we think you should be aware of.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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