Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Progress Software Corporation (NASDAQ:PRGS) is about to trade ex-dividend in the next four days. This means that investors who purchase shares on or after the 31st of August will not receive the dividend, which will be paid on the 15th of September.
Progress Software’s next dividend payment will be US$0.17 per share, and in the last 12 months, the company paid a total of US$0.66 per share. Based on the last year’s worth of payments, Progress Software stock has a trailing yield of around 1.7% on the current share price of $37.78. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether Progress Software can afford its dividend, and if the dividend could grow.
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. Progress Software is paying out an acceptable 62% of its profit, a common payout level among most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. What’s good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow last year.
It’s positive to see that Progress Software’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It’s not encouraging to see that Progress Software’s earnings are effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run. Earnings growth has been slim and the company is paying out more than half of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company’s prospects for future growth.
Many investors will assess a company’s dividend performance by evaluating how much the dividend payments have changed over time. In the past four years, Progress Software has increased its dividend at approximately 7.2% a year on average.
Has Progress Software got what it takes to maintain its dividend payments? It’s unfortunate that earnings per share have not grown, and we’d note that Progress Software is paying out lower percentage of its cashflow than its profit, but overall the dividend looks well covered by earnings. In summary, while it has some positive characteristics, we’re not inclined to race out and buy Progress Software today.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. To help with this, we’ve discovered 3 warning signs for Progress Software that you should be aware of before investing in their shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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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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