Broadcom Inc. (NASDAQ: AVGO) is set to go without a dividend in just three days, with the ex-dividend date approaching on June 24th. Investors purchasing shares on or after this date will not receive the dividend payment of $5.25 per share, scheduled for June 28th. The company distributed a total of US$21.00 to shareholders last year, resulting in a residual yield of 1.2% on the current share price of $1,802.52. It is important for investors to consider if the dividend is covered by earnings and if it is sustainable for future growth, as dividends are an important contributor to long-term investment returns.
Broadcom’s dividend payout ratio is 87% of earnings, indicating that the majority of earnings are being paid out as dividends. However, the company’s dividend payments represented only 47% of the free cash flow it generated, which is a comfortable payout ratio. This suggests that the dividend is covered by both profits and cash flow, making it sustainable as long as earnings do not decline significantly.
The company’s earnings per share have fallen about 5.7% annually over the past five years, raising concerns about the sustainability of the dividend in the future. Despite this, Broadcom has achieved dividend growth of 32% annually on average over the past nine years. However, without earnings growth, it is unlikely that the dividend will continue to grow significantly in the future.
While the payout ratios are within a reasonable range, declining earnings remain a serious concern that could threaten the dividend in the future. Investors should consider the risks associated with Broadcom, as every company faces risks that could impact dividend payments. It is important to conduct further research and analysis before making an investment decision based on dividend payouts.
Overall, while Broadcom’s dividend appears to be sustainable for now, the declining earnings raise doubts about the future growth of the dividend. Investors should carefully consider all factors before deciding whether to invest in Broadcom for its dividend.
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