Deluxe (NYSE:DLX) Will Pay A Dividend Of US$0.30

By
Simply Wall St
Published
May 08, 2022
NYSE:DLX
Source: Shutterstock

Deluxe Corporation (NYSE:DLX) will pay a dividend of US$0.30 on the 6th of June. The dividend yield will be 4.5% based on this payment which is still above the industry average.

View our latest analysis for Deluxe

Deluxe's Earnings Easily Cover the Distributions

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, Deluxe's profits didn't cover the dividend, but the company was generating enough cash instead. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

The next year is set to see EPS grow by 156.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 42%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.

historic-dividend
NYSE:DLX Historic Dividend May 8th 2022

Deluxe Has A Solid Track Record

Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the first annual payment was US$1.00, compared to the most recent full-year payment of US$1.20. This means that it has been growing its distributions at 1.8% per annum over that time. 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 who have held shares in the company for the past few years will be happy with the dividend income they have received. However, things aren't all that rosy. Deluxe's earnings per share has shrunk at 25% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Deluxe's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 4 warning signs for Deluxe (1 is a bit unpleasant!) that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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