Consumer services

ADT (NYSE:ADT) reaffirmed its dividend of $0.035

ADT inc. (NYSE: ADT) will pay a dividend of $0.035 on July 5. Based on this payout, the dividend yield will be 2.0%, which is fairly typical for the industry.

See our latest analysis for ADT

ADT distributions could be difficult to maintain

We’re not too impressed with dividend yields unless they can be sustained over time. ADT is not profitable despite paying a dividend and pays out 321% of its free cash flow. These payout levels would generally be quite difficult to maintain.

Looking ahead, earnings per share are expected to increase 77.8% over the next year. The company appears to be on the right track, but it will take just over a year to reach profitability. Unless this can be done in the short term, the dividend could be difficult to sustain.

NYSE: Historic ADT Dividend May 9, 2022

ADT does not have a long payment history

The dividend hasn’t had any major cuts in the past, but the company has only been paying a dividend for 4 years, which isn’t that long in the grand scheme of things. There hasn’t been much change in the dividend over the last 4 months. Good to see at least some dividend growth. Still, with a relatively short dividend payout history, we wouldn’t want to rely too heavily on that dividend.

The dividend has limited growth potential

Investors in the company will be happy to have received dividend income for a while. However, first appearances could be deceiving. ADT’s EPS has declined approximately 14% per year over the past five years. A sharp drop in earnings per share is not great from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall enough. Over the next year, however, earnings should actually rise, but we will remain cautious until a track record of earnings growth can be established.

We’re not big fans of ADT’s dividend

In summary, while it is good to see that the dividend has not been cut, we believe that at current levels the payout is not particularly sustainable. The company seems to be stretching a bit to make such large payments, but it doesn’t seem like they can be consistent over time. All in all, it doesn’t excite us from a revenue standpoint.

Companies with a stable dividend policy are likely to enjoy greater investor interest than those that suffer from a more inconsistent approach. However, there are other things for investors to consider when analyzing stock performance. Example: we have identified 3 warning signs for ADT (1 of which should not be ignored!) that you should know. ADT not quite the opportunity you were looking for? Why not check out our selection of the best dividend stocks.

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