T-Mobile US, Inc. (NASDAQ:TMUS) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase T-Mobile US' shares on or after the 27th of November, you won't be eligible to receive the dividend, when it is paid on the 12th of December.
The company's upcoming dividend is US$0.88 a share, following on from the last 12 months, when the company distributed a total of US$3.52 per share to shareholders. Based on the last year's worth of payments, T-Mobile US stock has a trailing yield of around 1.5% on the current share price of US$236.58. If you buy this business for its dividend, you should have an idea of whether T-Mobile US's dividend is reliable and sustainable. As a result, readers should always check whether T-Mobile US has been able to grow its dividends, or if the dividend might be cut.
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. Fortunately T-Mobile US's payout ratio is modest, at just 32% of profit. A useful secondary check can be to evaluate whether T-Mobile US generated enough free cash flow to afford its dividend. Fortunately, it paid out only 30% of its free cash flow in the past year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see T-Mobile US's earnings have been skyrocketing, up 21% per annum for the past five years. Earnings per share have been growing very quickly, and the company is paying out a relatively low percentage of its profit and cash flow. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.
Given that T-Mobile US has only been paying a dividend for a year, there's not much of a past history to draw insight from.
The Bottom Line
Should investors buy T-Mobile US for the upcoming dividend? T-Mobile US has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Overall we think this is an attractive combination and worthy of further research.
On that note, you'll want to research what risks T-Mobile US is facing. For example - T-Mobile US has 2 warning signs we think you should be aware of.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are 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.
