InterDigital (NASDAQ: IDCC) announced dividend of US $ 0.35

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InterDigital, Inc. (NASDAQ: IDCC) will pay a dividend of $ 0.35 on October 27. Based on this payment, the dividend yield on the shares of the company will be 2.1%, which represents an attractive increase in returns for shareholders.

InterDigital’s payment has strong revenue coverage

Impressive dividend yields are good, but it doesn’t matter much if the payouts can’t be sustained. Prior to this announcement, the company’s dividend outweighed its profits. Without increased earnings and cash flow, it would be difficult for the company to continue paying the dividend at this level.

EPS is expected to grow 104.1% over the next year. If the dividend continues to grow according to recent trends, we estimate that the payout ratio could reach 79%, which is higher, but certainly still doable.

NasdaqGS: Historic IDCC Dividend September 29, 2021

InterDigital has a solid track record

Even over a long history of paying dividends, the company’s distributions have been remarkably stable. The first annual payment in the past 10 years was US $ 0.40 in 2011, and the most recent year’s payment was US $ 1.40. This works out to a compound annual growth rate (CAGR) of around 13% per year over that time period. So, dividends have grown quite quickly, and what is even more impressive, they haven’t seen any noticeable decline during that time.

The potential for dividend growth is fragile

Some investors will be eager to buy a portion of the company’s stock based on its dividend history. Let’s not jump to conclusions, because things might not be as good as they appear on the surface. Over the past five years, it appears that InterDigital’s EPS has declined by around 23% per year. This sharp drop may indicate that the company is going through a difficult time, which could limit its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are expected to rise, but we will remain cautious until a history of earnings growth can be established.

InterDigital’s dividend does not seem sustainable

Overall, it’s nice to see a consistent dividend payout, but we believe in the longer term the current payout level could be unsustainable. Although they have been constant in the past, we think the payouts are a bit high to be sustained. We would be a little cautious if we were relying on this security primarily for dividend income.

Market movements testify to the high value of a coherent dividend policy compared to a more unpredictable one. However, there are other things for investors to consider when analyzing the performance of stocks. To this end, InterDigital has 3 warning signs (and 1 which is a bit rude) we think you should be aware of. If you are a dividend investor, you can also view our organized list of high performing dividend stocks.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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