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Regular readers will know we love our dividends at Simply Wall St, which is why it is exciting to see KLA Corporation (NASDAQ: KLAC) is set to trade ex-dividend within the next three days. If you buy the stock on or after February 18, you will not be eligible to receive this dividend, when it is paid on March 2.
KLA’s upcoming dividend is US $ 0.90 per share, after the past 12 months, when the company has distributed a total of US $ 3.60 per share to shareholders. Based on the value of last year’s payouts, the KLA stock has a trailing yield of approximately 1.1% over the current stock price of $ 331.81. If you are buying this company for its dividend, you should get a feel for the reliability and sustainability of KLA’s dividend. We need to see if the dividend is covered by profits and if it increases.
Check out our latest analysis for KLA
If a company pays more in dividends than it has earned, then the dividend can become unsustainable – hardly an ideal situation. Fortunately, the UCK’s payout ratio is modest, at just 40% of profits. Having said that, even very profitable companies can sometimes not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by the cash flow. It distributed 31% of its free cash flow in the form of dividends, a comfortable distribution level for most companies.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t fall precipitously.
Click here to view the company’s payout ratio, as well as analysts’ estimates of its future dividends.
Have Profits and Dividends Increased?
Companies with steadily increasing earnings per share are generally the best dividend-paying stocks because they generally find it easier to increase dividends per share. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to sell heavily at the same time. It is encouraging to see that the UCK has grown its profits rapidly, rising 31% per year over the past five years. KLA pays less than half of its profits and cash flow, while simultaneously increasing its earnings per share at a rapid rate. Companies with growing profits and low payout ratios are often the best long-term dividend-paying stocks because the company can both increase profits and increase the percentage of profits it pays out, essentially multiplying the dividend.
Most investors will primarily assess a company’s dividend prospects by checking the historical rate of dividend growth. Over the past 10 years, KLA has increased its dividend by around 20% per year on average. It is exciting to see that earnings and dividends per share have grown rapidly over the past few years.
To summarize
From a dividend perspective, should investors buy or avoid UCK? We like the fact that KLA is increasing its earnings per share while simultaneously paying a small percentage of its earnings and cash flow. These characteristics suggest that the company is reinvesting in growing its business, while the prudent payout ratio also implies reduced risk of dividend reduction in the future. There’s a lot to like about the UCK, and we would prioritize a closer look.
With this in mind, an essential part of thorough research on stocks is to be aware of all the risks that stocks currently face. For example – KLA has 3 warning signs we think you should be aware of this.
If you are looking for dividend paying stocks, we recommend that you take a look at our list of top dividend paying stocks with a yield above 2% and a dividend coming soon.
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This Simply Wall St article is general in nature. It is not a recommendation to buy or sell stocks, and does not take into account your goals or your financial situation. We aim to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative information. Simply Wall St has no position in the mentioned stocks.
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