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InterDigital (NASDAQ:IDCC) Has Announced A Dividend Of $0.35

InterDigital, Inc. (NASDAQ:IDCC) will pay a dividend of $0.35 on the 25th of January. Based on this payment, the dividend yield on the company's stock will be 2.9%, which is an attractive boost to shareholder returns.

Check out our latest analysis for InterDigital

InterDigital's Earnings Easily Cover The Distributions

A big dividend yield for a few years doesn't mean much if it can't be sustained. Based on the last payment, InterDigital was earning enough to cover the dividend, but free cash flows weren't positive. In general, we consider cash flow to be more important than earnings, so we would be cautious about relying on the sustainability of this dividend.

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Looking forward, earnings per share is forecast to rise by 9.0% over the next year. If the dividend continues on this path, the payout ratio could be 48% by next year, which we think can be pretty sustainable going forward.

historic-dividend
historic-dividend

InterDigital Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. The annual payment during the last 10 years was $0.40 in 2012, and the most recent fiscal year payment was $1.40. This implies that the company grew its distributions at a yearly rate of about 13% over that duration. Rapidly growing dividends for a long time is a very valuable feature for an income stock.

The Dividend Has Limited Growth Potential

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. However, initial appearances might be deceiving. Over the past five years, it looks as though InterDigital's EPS has declined at around 18% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about InterDigital's payments, as there could be some issues with sustaining them into the future. While InterDigital is earning enough to cover the payments, the cash flows are lacking. We would probably look elsewhere for an income investment.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Just as an example, we've come across 2 warning signs for InterDigital you should be aware of, and 1 of them shouldn't be ignored. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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.

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