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Readers hoping to buy Northrop Grumman Corporation (NYSE:NOC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Thus, you can purchase Northrop Grumman's shares before the 24th of November in order to receive the dividend, which the company will pay on the 13th of December.
The company's next dividend payment will be US$1.87 per share, and in the last 12 months, the company paid a total of US$7.48 per share. Based on the last year's worth of payments, Northrop Grumman stock has a trailing yield of around 1.6% on the current share price of $464.17. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Northrop Grumman can afford its dividend, and if the dividend could grow.
See our latest analysis for Northrop Grumman
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Northrop Grumman paid out just 23% of its profit last year, which we think is conservatively low and leaves plenty of margin for unexpected circumstances. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 53% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's positive to see that Northrop Grumman's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Northrop Grumman's earnings per share have been growing at 13% a year for the past five years. Northrop Grumman is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.