Semiconductor giant Applied Materials (AMAT 2.98%) recently announced a whopping 25% boost to its quarterly dividend, taking its total to $0.40 per share, up from $0.32 previously. That incredibly strong increase came on the heels of a 23% increase in 2023 and is part of the company's previously announced plan to double its payout over the next few years.
A monster dividend increase like that is a great reward to long-term shareholders, handing them a tangible cash return for the risks they've taken by holding the company's stock. Of course, for those of us who don't own Applied Materials' stock, that boost raises a key question: Are you missing out on this stock's monster dividend raise by not owning its shares?
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A fairly low base
On one hand, Applied Materials can certainly afford to boost its dividend to $1.60 per share per year. Over the past four reported quarters, it has earned $8.50 per share, making its payout ratio a modest 19%. In addition, even with that increase, its dividend yield to shareholders remains below 1%.
That modest payout ratio and yield mean that Applied Materials is still pretty new to providing its shareholders with direct returns through dividends. In addition, with earnings growth expected to clock in around 15% annualized over the next five years, the market is expecting more in total returns from growth than from dividends in the near term.
Put together, those factors mean that looking at what's just going on today, those who don't own Applied Materials' stock aren't really missing out on much from a dividend perspective. Despite the large raise, the low base and modest yield mean that investors who are looking for current dividend income can easily find greener pastures elsewhere.
Great prospects for the future
On the other hand, in 2023, when Applied Materials first announced its plan to double its dividend over several years, it made it clear that it felt confident in its prospects to do so. As Applied Materials is boosting its dividend by around 25% at a time when its growth prospects are around 15%, it is keeping enough cash around to reinvest for growth while boosting its payout.
When it comes to dividends, nothing is certain until the payment is formally announced. Still, if you look at both Applied Materials' expected dividend trajectory and its anticipated earnings trajectory, you can make a case that it is setting itself up to offer a decent income stream over time.
From that perspective, people considering making and investment in its shares today might not be getting a great current income stream but might be getting an awesome future one. As the company's shares trade around a reasonable 23 times its trailing earnings, investors aren't paying an outrageously inflated price for its overall prospects.
For the right investor, it's worth considering
Net, while those investors most interested in current income from their dividend stocks might be disappointed, those who care more about future income growth could be excited. For an investor looking for a rising dividend as a signal of a strong and growing company, Applied Materials' combination of a rapid dividend growth rate and modest payout ratio looks appealing.
As a result, its dividend should be considered the icing on the cake. Overall, the company looks like it offers the prospects of a decent total return over time driven by a combination of rising earnings and a rising dividend. Nothing in investing is guaranteed until it unfolds, but the way Applied Materials looks today, it certainly appears to be at least worth considering for investors with a long term time horizon.
