It looks like MKS Instruments, Inc. (NASDAQ:MKSI) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Meaning, you will need to purchase MKS Instruments' shares before the 24th of November to receive the dividend, which will be paid on the 8th of December.
The company's next dividend payment will be US$0.22 per share, on the back of last year when the company paid a total of US$0.88 to shareholders. Last year's total dividend payments show that MKS Instruments has a trailing yield of 1.1% on the current share price of $76.56. 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 MKS Instruments has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for MKS Instruments
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. MKS Instruments lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If MKS Instruments didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Thankfully its dividend payments took up just 28% of the free cash flow it generated, which is a comfortable payout ratio.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. MKS Instruments was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, MKS Instruments has increased its dividend at approximately 3.2% a year on average.
Remember, you can always get a snapshot of MKS Instruments's financial health, by checking our visualisation of its financial health, here.
The Bottom Line
Has MKS Instruments got what it takes to maintain its dividend payments? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not that we think MKS Instruments is a bad company, but these characteristics don't generally lead to outstanding dividend performance.
With that being said, if you're still considering MKS Instruments as an investment, you'll find it beneficial to know what risks this stock is facing. Our analysis shows 2 warning signs for MKS Instruments that we strongly recommend you have a look at before investing in the company.
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield 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.