Why You Might Be Interested In Citrix Systems, Inc. (NASDAQ:CTXS) For Its Upcoming Dividend

Citrix Systems, Inc. (NASDAQ:CTXS) stock is about to trade ex-dividend in four days. You will need to purchase shares before the 7th of December to receive the dividend, which will be paid on the 22nd of December.

Citrix Systems's next dividend payment will be US$0.35 per share, on the back of last year when the company paid a total of US$1.40 to shareholders. Calculating the last year's worth of payments shows that Citrix Systems has a trailing yield of 1.1% on the current share price of $125.59. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Citrix Systems

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Fortunately Citrix Systems's payout ratio is modest, at just 29% of profit. 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. It paid out 18% of its free cash flow as dividends last year, which is conservatively low.

It's positive to see that Citrix Systems'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.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Citrix Systems has grown its earnings rapidly, up 26% a year for the past five years. Citrix Systems is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. This is a very favourable combination that can often lead to the dividend multiplying over the long term, if earnings grow and the company pays out a higher percentage of its earnings.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. It looks like the Citrix Systems dividends are largely the same as they were two years ago.

The Bottom Line

Should investors buy Citrix Systems for the upcoming dividend? Citrix Systems has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. Citrix Systems looks solid on this analysis overall, and we'd definitely consider investigating it more closely.

While it's tempting to invest in Citrix Systems for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Citrix Systems and you should be aware of this before buying any shares.

If you're in the market for dividend stocks, we recommend checking our list of top 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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