Deluxe (NYSE:DLX) Has Announced A Dividend Of US$0.30

The board of Deluxe Corporation (NYSE:DLX) has announced that it will pay a dividend of US$0.30 per share on the 6th of December. This makes the dividend yield 3.2%, which will augment investor returns quite nicely.

See our latest analysis for Deluxe

Deluxe's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. The last dividend was quite easily covered by Deluxe's earnings. This indicates that a lot of the earnings are being reinvested into the business, with the aim of fueling growth.

Over the next year, EPS is forecast to expand by 52.6%. Assuming the dividend continues along recent trends, we think the payout ratio could be 43% by next year, which is in a pretty sustainable range.

Deluxe Has A Solid Track Record

The company has an extended history of paying stable dividends. The dividend has gone from US$1.00 in 2011 to the most recent annual payment of US$1.20. This implies that the company grew its distributions at a yearly rate of about 1.8% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.

Dividend Growth Potential Is Shaky

Investors could be attracted to the stock based on the quality of its payment history. However, initial appearances might be deceiving. Deluxe's EPS has fallen by approximately 18% per year during the past five years. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

In Summary

Overall, a consistent dividend is a good thing, and we think that Deluxe has the ability to continue this into the future. The earnings coverage is acceptable for now, but with earnings on the decline we would definitely keep an eye on the payout ratio. Taking all of this into consideration, the dividend looks viable moving forward, but investors should be mindful that the company has pushed the boundaries of sustainability in the past and may do so again.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 2 warning signs for Deluxe you should be aware of, and 1 of them doesn't sit too well with us. We have also put together a list of global stocks with a solid dividend.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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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