Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Littelfuse, Inc. (NASDAQ:LFUS) is about to trade ex-dividend in the next four days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. Therefore, if you purchase Littelfuse's shares on or after the 21st of November, you won't be eligible to receive the dividend, when it is paid on the 7th of December.
The company's next dividend payment will be US$0.65 per share, on the back of last year when the company paid a total of US$2.60 to shareholders. Based on the last year's worth of payments, Littelfuse has a trailing yield of 1.1% on the current stock price of $241.68. If you buy this business for its dividend, you should have an idea of whether Littelfuse's dividend is reliable and sustainable. So we need to investigate whether Littelfuse can afford its dividend, and if the dividend could grow.
View our latest analysis for Littelfuse
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Littelfuse has a low and conservative payout ratio of just 20% of its income after tax. A useful secondary check can be to evaluate whether Littelfuse generated enough free cash flow to afford its dividend. The good news is it paid out just 18% of its free cash flow in the last 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. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Littelfuse's earnings per share have risen 19% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Littelfuse has delivered an average of 13% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.
The Bottom Line
From a dividend perspective, should investors buy or avoid Littelfuse? Littelfuse 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. Littelfuse looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Littelfuse? See what the seven analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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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.