Progress Software Corporation (NASDAQ:PRGS) stock is about to trade ex-dividend in 3 days. Investors can purchase shares before the 26th of February in order to be eligible for this dividend, which will be paid on the 15th of March.
Progress Software's next dividend payment will be US$0.17 per share, on the back of last year when the company paid a total of US$0.70 to shareholders. Calculating the last year's worth of payments shows that Progress Software has a trailing yield of 1.6% on the current share price of $44.98. If you buy this business for its dividend, you should have an idea of whether Progress Software's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
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. Progress Software paid out a comfortable 38% of its profit last year. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its 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.
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 earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Progress Software has grown its earnings rapidly, up 48% a year for the past five years. Progress Software is paying out less than half its earnings and cash flow, while simultaneously growing earnings per share at a rapid clip. Companies with growing earnings and low payout ratios are often the best long-term dividend stocks, as the company can both grow its earnings and increase the percentage of earnings that it pays out, essentially multiplying the dividend.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Since the start of our data, four years ago, Progress Software has lifted its dividend by approximately 8.8% 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.
From a dividend perspective, should investors buy or avoid Progress Software? Progress Software 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. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Progress Software for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 3 warning signs for Progress Software that you should be aware of before investing in their shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising 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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