The board of Xerox Holdings Corporation (NASDAQ:XRX) has announced that it will pay a dividend of $0.25 per share on the 31st of October. Based on this payment, the dividend yield on the company's stock will be 5.7%, which is an attractive boost to shareholder returns.
Xerox Holdings' Earnings Easily Cover The Distributions
Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. While Xerox Holdings is not profitable, it is paying out less than 75% of its free cash flow, which means that there is plenty left over for reinvestment into the business. This gives us some comfort about the level of the dividend payments.
According to analysts, EPS should be several times higher next year. Assuming the dividend continues along recent trends, we think the payout ratio will be 5.9%, which makes us pretty comfortable with the sustainability of the dividend.
Xerox Holdings Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the annual payment back then was $0.68, compared to the most recent full-year 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.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Earnings per share has been sinking by 35% over the last five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future. 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.
Our Thoughts On Xerox Holdings' Dividend
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Xerox Holdings' payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. To that end, Xerox Holdings has 2 warning signs (and 1 which shouldn't be ignored) we think you should know about. 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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Xerox Holdings Corporation, a workplace technology company, designs, develops, and sells document management systems and solutions in the United States, Europe, Canada, and internationally.
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Undervalued average dividend payer.