CSG Systems International, Inc. (NASDAQ:CSGS) stock is about to trade ex-dividend in 4 days time. You can purchase shares before the 5th of March in order to receive the dividend, which the company will pay on the 25th of March.
CSG Systems International’s next dividend payment will be US$0.23 per share. Last year, in total, the company distributed US$0.94 to shareholders. Calculating the last year’s worth of payments shows that CSG Systems International has a trailing yield of 2.1% on the current share price of $44.38. If you buy this business for its dividend, you should have an idea of whether CSG Systems International’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.
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. That’s why it’s good to see CSG Systems International paying out a modest 34% of its earnings. 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. Thankfully its dividend payments took up just 26% of the free cash flow it generated, which is a comfortable payout ratio.
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.
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 fall far enough, the company could be forced to cut its dividend. Fortunately for readers, CSG Systems International’s earnings per share have been growing at 19% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. Fast-growing businesses that are reinvesting heavily are enticing from a dividend perspective, especially since they can often increase the payout ratio later.
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. In the past seven years, CSG Systems International has increased its dividend at approximately 6.6% 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 CSG Systems International an attractive dividend stock, or better left on the shelf? CSG Systems International has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There’s a lot to like about CSG Systems International, and we would prioritise taking a closer look at it.
Wondering what the future holds for CSG Systems International? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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