Here's What We Like About Microchip Technology's (NASDAQ:MCHP) Upcoming Dividend

Dec 21, 2023

Stock Analysis

Microchip Technology Incorporated (NASDAQ:MCHP) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. Therefore, if you purchase Microchip Technology's shares on or after the 19th of May, you won't be eligible to receive the dividend, when it is paid on the 5th of June.

The company's next dividend payment will be US$0.38 per share, on the back of last year when the company paid a total of US$1.53 to shareholders. Calculating the last year's worth of payments shows that Microchip Technology has a trailing yield of 2.1% on the current share price of $73.81. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Microchip Technology can afford its dividend, and if the dividend could grow.

See our latest analysis for Microchip Technology

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Microchip Technology paid out a comfortable 31% of its profit last year.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. That's why it's comforting to see Microchip Technology's earnings have been skyrocketing, up 49% per annum for the past five years. Microchip Technology is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Microchip Technology has delivered an average of 8.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

Is Microchip Technology worth buying for its dividend? When companies are growing rapidly and retaining a majority of the profits within the business, it's usually a sign that reinvesting earnings creates more value than paying dividends to shareholders. This strategy can add significant value to shareholders over the long term - as long as it's done without issuing too many new shares. We think this is a pretty attractive combination, and would be interested in investigating Microchip Technology more closely.

On that note, you'll want to research what risks Microchip Technology is facing. Our analysis shows 2 warning signs for Microchip Technology and you should be aware of them before buying any shares.

A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.

What are the risks and opportunities for Microchip Technology?

NasdaqGS:MCHP

Microchip Technology

Microchip Technology Incorporated develops, manufactures, and sells smart, connected, and secure embedded control solutions in the Americas, Europe, and Asia.Show more

Rewards

Price-To-Earnings ratio (19.7x) is below the Semiconductor industry average (23.4x)

Earnings are forecast to grow 5.97% per year

Earnings grew by 74.1% over the past year

Risks

Has a high level of debt

Share Price

Market Cap

1Y Return

Further research onMicrochip Technology

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.

Microchip Technology Incorporated develops, manufactures, and sells smart, connected, and secure embedded control solutions in the Americas, Europe, and Asia.

Outstanding track record established dividend payer.