Dividends can be underrated but they form a large part of investment returns, playing an important role in compounding returns in the long run. Historically, Maxim Integrated Products Inc (NASDAQ:MXIM) has paid a dividend to shareholders. It currently yields 3.5%. Let’s dig deeper into whether Maxim Integrated Products should have a place in your portfolio.

Check out our latest analysis for Maxim Integrated Products

5 checks you should use to assess a dividend stock

Whenever I am looking at a potential dividend stock investment, I always check these five metrics:

• Is their annual yield among the top 25% of dividend payers?

• Has it paid dividend every year without dramatically reducing payout in the past?

• Has dividend per share amount increased over the past?

• Is its earnings sufficient to payout dividend at the current rate?

• Will the company be able to keep paying dividend based on the future earnings growth?

How does Maxim Integrated Products fare?

The current trailing twelve-month payout ratio for MXIM is 97%, which means that the dividend is not well-covered by its earnings. In the near future, analysts are predicting a more sensible payout ratio of 63%, leading to a dividend yield of 3.6%. Moreover, EPS should increase to $2.63, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment.

When considering the sustainability of dividends, it is also worth checking the cash flow of a company. A business with strong cash flow can sustain a higher divided payout ratio than a company with weak cash flow.

If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you’re eyeing out is reliable in its payments. In the case of MXIM it has increased its DPS from $0.80 to $1.84 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock.

Relative to peers, Maxim Integrated Products generates a yield of 3.5%, which is high for Semiconductor stocks but still below the market’s top dividend payers.

Next Steps:

Considering the dividend attributes we analyzed above, Maxim Integrated Products is definitely worth keeping an eye on for someone looking to build a dedicated income portfolio. Given that this is purely a dividend analysis, I urge potential investors to try and get a good understanding of the underlying business and its fundamentals before deciding on an investment. Below, I’ve compiled three relevant aspects you should look at:

1. Future Outlook: What are well-informed industry analysts predicting for MXIM’s future growth? Take a look at our free research report of analyst consensus for MXIM’s outlook.

2. Valuation: What is MXIM worth today? Even if the stock is a cash cow, it’s not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether MXIM is currently mispriced by the market.

3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.