Information Services (TSE:ISV) Has Announced A Dividend Of CA$0.23

The board of Information Services Corporation ( TSE:ISV ) has announced that it will pay a dividend on the 15th of January, with investors receiving CA$0.23 per share. This makes the dividend yield 4.1%, which will augment investor returns quite nicely.

See our latest analysis for Information Services

Information Services' Dividend Is Well Covered By Earnings

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Before making this announcement, Information Services was paying out a fairly large proportion of earnings, and it wasn't generating positive free cash flows either. Generally, we think that this would be a risky long term practice.

Looking forward, earnings per share is forecast to rise by 82.2% over the next year. If the dividend continues on this path, the payout ratio could be 40% by next year, which we think can be pretty sustainable going forward.

Information Services Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. Since 2013, the annual payment back then was CA$0.80, compared to the most recent full-year payment of CA$0.92. This means that it has been growing its distributions at 1.4% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

Our Thoughts On Information Services' Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While Information Services is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for Information Services (of which 1 can't be ignored!) you should know about. Is Information Services not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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