InterDigital's Dividend Is Safe

Here, we'll highlight a given company and its closest competitors to see just how safe their dividends are, with a little help from three crucial tools: The interest coverage ratio, or earnings before interest and taxes, divided by interest expense. The interest coverage ratio measures a company's ability to pay the interest on its debt. An interest coverage ratio less than 1.5 is questionable; a number less than 1 means that the company is not bringing in enough money to cover its interest expenses. The EPS payout ratio, or dividends per share divided by earnings per share. The EPS payout ratio measures the percentage of earnings that go toward paying the dividend. A ratio greater than 80% is worrisome. The FCF payout ratio, or dividends per share divided by free cash flow per share. Earnings alone don't always paint a complete picture of a business' health. The FCF payout ratio measures the percentage of free cash flow devoted toward paying the dividend. Again, a ratio greater 80% could be a red flag. Let's examine InterDigital (Nasdaq: IDCC) and three of its peers. Qualcomm (Nasdaq: QCOM) , with its robust licensing business, offers the closest pure play to InterDigital. In the case of Cisco (Nasdaq: CSCO) and Texas Instruments (NYSE: TXN) , both have powerful patent portfolios that span the communications equipment and mobile sectors.... Read more