Xerox Holdings (NASDAQ:XRX) Has Affirmed Its Dividend Of $0.25

The board of Xerox Holdings Corporation (NASDAQ:XRX) has announced that it will pay a dividend on the 31st of January, with investors receiving $0.25 per share. This makes the dividend yield 6.3%, which will augment investor returns quite nicely.

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Xerox Holdings' Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. The company is paying out a large amount of its cash flows, even though it isn't generating any profit. This is quite a strong warning sign that the dividend may not be sustainable.

Analysts expect a massive rise in earnings per share in the next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 6.2%, which makes us pretty comfortable with the sustainability of the dividend.

Xerox Holdings Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $0.68 in 2012 to the most recent total annual payment of $1.00. This means that it has been growing its distributions at 3.9% per annum over that time. Although we can't deny that the dividend has been remarkably stable in the past, the growth has been pretty muted.

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. Let's not jump to conclusions as things might not be as good as they appear on the surface. Xerox Holdings' EPS has fallen by approximately 48% per year during the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. Over the next year, however, earnings are actually predicted to rise, but we would still be cautious until a track record of earnings growth can be built.

Xerox Holdings' Dividend Doesn't Look Sustainable

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would be a touch cautious of relying on this stock primarily for the dividend income.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 2 warning signs for Xerox Holdings that you should be aware of before investing. Is Xerox Holdings not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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