The board of NortonLifeLock Inc. (NASDAQ:NLOK) has announced that it will pay a dividend on the 22nd of June, with investors receiving US$0.13 per share. The dividend yield will be 2.0% based on this payment which is still above the industry average.
NortonLifeLock's Dividend Is Well Covered By Earnings
A big dividend yield for a few years doesn't mean much if it can't be sustained. However, prior to this announcement, NortonLifeLock's dividend was comfortably covered by both cash flow and earnings. This means that most of what the business earns is being used to help it grow.
The next year is set to see EPS grow by 20.2%. If the dividend continues on this path, the payout ratio could be 29% by next year, which we think can be pretty sustainable going forward.
NortonLifeLock's Dividend Has Lacked Consistency
Even in its relatively short history, the company has reduced the dividend at least once. If the company cuts once, it definitely isn't argument against the possibility of it cutting in the future. Since 2013, the dividend has gone from US$0.60 to US$0.50. Doing the maths, this is a decline of about 2.0% per year. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.
The Dividend Looks Likely To Grow
Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. NortonLifeLock has impressed us by growing EPS at 25% per year over the past five years. Earnings have been growing rapidly, and with a low payout ratio we think that the company could turn out to be a great dividend stock.
We Really Like NortonLifeLock's Dividend
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. Earnings are easily covering distributions, and the company is generating plenty of cash. All of these factors considered, we think this has solid potential as a dividend stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 4 warning signs for NortonLifeLock you should be aware of, and 1 of them is significant. Is NortonLifeLock not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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