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Does Applied Materials, Inc. (NASDAQ:AMAT) Have A Place In Your Portfolio?

Over the past 10 years Applied Materials, Inc. (NASDAQ:AMAT) has been paying dividends to shareholders. The company is currently worth US$32b, and now yields roughly 2.5%. Should it have a place in your portfolio? Let’s take a look at Applied Materials in more detail.

See our latest analysis for Applied Materials

5 questions I ask before picking a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

  • Is it paying an annual yield above 75% of dividend payers?

  • Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?

  • Has it increased its dividend per share amount over the past?

  • Is its earnings sufficient to payout dividend at the current rate?

  • Will it have the ability to keep paying its dividends going forward?

NasdaqGS:AMAT Historical Dividend Yield December 20th 18
NasdaqGS:AMAT Historical Dividend Yield December 20th 18

How does Applied Materials fare?

The current trailing twelve-month payout ratio for the stock is 21%, meaning the dividend is sufficiently covered by earnings. In the near future, analysts are predicting a payout ratio of 20% which, assuming the share price stays the same, leads to a dividend yield of 2.8%. Moreover, EPS should increase to $3.3.

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When thinking about whether a dividend is sustainable, another factor to consider is the cash flow. Companies with strong cash flow can sustain a higher payout ratio, while companies with weaker cash flow generally cannot.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of AMAT it has increased its DPS from $0.24 to $0.80 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.

Compared to its peers, Applied Materials generates a yield of 2.5%, which is on the low-side for Semiconductor stocks.

Next Steps:

With this in mind, I definitely rank Applied Materials as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. There are three pertinent aspects you should look at:

  1. Future Outlook: What are well-informed industry analysts predicting for AMAT’s future growth? Take a look at our free research report of analyst consensus for AMAT’s outlook.

  2. Valuation: What is AMAT worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether AMAT is currently mispriced by the market.

  3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.