Dolby Laboratories, Inc. (NYSE:DLB) Looks Like A Good Stock, And It's Going Ex-Dividend Soon

Readers hoping to buy Dolby Laboratories, Inc. (NYSE:DLB) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 14th of August, you won't be eligible to receive this dividend, when it is paid on the 26th of August.

Dolby Laboratories's next dividend payment will be US$0.22 per share, and in the last 12 months, the company paid a total of US$0.88 per share. Calculating the last year's worth of payments shows that Dolby Laboratories has a trailing yield of 1.3% on the current share price of $70.17. If you buy this business for its dividend, you should have an idea of whether Dolby Laboratories's dividend is reliable and sustainable. As a result, readers should always check whether Dolby Laboratories has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Dolby Laboratories

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Dolby Laboratories paid out a comfortable 36% of its profit last year. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 30% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Dolby Laboratories, with earnings per share up 4.1% on average over the last five years. Recent growth has not been impressive. Yet there are several ways to grow the dividend, and one of them is simply that the company may choose to pay out more of its earnings as dividends.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last six years, Dolby Laboratories has lifted its dividend by approximately 14% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

The Bottom Line

Is Dolby Laboratories an attractive dividend stock, or better left on the shelf? Earnings per share growth has been growing somewhat, and Dolby Laboratories is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Dolby Laboratories is halfway there. There's a lot to like about Dolby Laboratories, and we would prioritise taking a closer look at it.

Curious what other investors think of Dolby Laboratories? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.

This article by Simply Wall St is general in nature. 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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