Cognizant Technology Solutions (NASDAQ:CTSH) Is Paying Out A Larger Dividend Than Last Year

Cognizant Technology Solutions Corporation's (NASDAQ:CTSH) dividend will be increasing from last year's payment of the same period to $0.29 on 28th of February. The payment will take the dividend yield to 1.7%, which is in line with the average for the industry.

View our latest analysis for Cognizant Technology Solutions

Cognizant Technology Solutions' Payment Has Solid Earnings Coverage

Unless the payments are sustainable, the dividend yield doesn't mean too much. However, Cognizant Technology Solutions' earnings easily cover the dividend. This means that most of its earnings are being retained to grow the business.

The next year is set to see EPS grow by 23.6%. If the dividend continues on this path, the payout ratio could be 23% by next year, which we think can be pretty sustainable going forward.

Cognizant Technology Solutions Doesn't Have A Long Payment History

Cognizant Technology Solutions' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. Since 2017, the annual payment back then was $0.60, compared to the most recent full-year payment of $1.16. This means that it has been growing its distributions at 12% per annum over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

The Dividend Looks Likely To Grow

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Cognizant Technology Solutions has grown earnings per share at 12% per year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.

We Really Like Cognizant Technology Solutions' Dividend

Overall, a dividend increase is always good, and we think that Cognizant Technology Solutions is a strong income stock thanks to its track record and growing earnings. Distributions are quite easily covered by earnings, which are also being converted to cash flows. All in all, this checks a lot of the boxes we look for when choosing an income stock.

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. Taking the debate a bit further, we've identified 1 warning sign for Cognizant Technology Solutions that investors need to be conscious of moving forward. Is Cognizant Technology Solutions not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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