Progress Software Corporation (NASDAQ:PRGS) Passed Our Checks, And It's About To Pay A US$0.175 Dividend

Progress Software Corporation (NASDAQ:PRGS) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Therefore, if you purchase Progress Software's shares on or after the 29th of February, you won't be eligible to receive the dividend, when it is paid on the 15th of March.

The company's next dividend payment will be US$0.175 per share, and in the last 12 months, the company paid a total of US$0.70 per share. Based on the last year's worth of payments, Progress Software stock has a trailing yield of around 1.2% on the current share price of US$56.49. If you buy this business for its dividend, you should have an idea of whether Progress Software's dividend is reliable and sustainable. As a result, readers should always check whether Progress Software has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Progress Software

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Progress Software paid out a comfortable 43% of its profit last year. A useful secondary check can be to evaluate whether Progress Software generated enough free cash flow to afford its dividend. Luckily it paid out just 19% of its free cash flow last year.

It's positive to see that Progress Software'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. With that in mind, we're encouraged by the steady growth at Progress Software, with earnings per share up 8.0% on average over the last five years. Management have been reinvested more than half of the company's earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Since the start of our data, seven years ago, Progress Software has lifted its dividend by approximately 4.9% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.

To Sum It Up

Is Progress Software worth buying for its dividend? Earnings per share have been growing moderately, and Progress Software is paying out less than half its earnings and cash flow as dividends, which is an attractive combination as it suggests the company is investing in growth. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Progress Software is halfway there. Overall we think this is an attractive combination and worthy of further research.

With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. For example, we've found 3 warning signs for Progress Software that we recommend you consider before investing in the business.

Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.

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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.