Broadridge Financial Solutions, Inc. (NYSE:BR) stock is about to trade ex-dividend in 4 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Broadridge Financial Solutions investors that purchase the stock on or after the 14th of December will not receive the dividend, which will be paid on the 5th of January.
The company's next dividend payment will be US$0.72 per share. Last year, in total, the company distributed US$2.90 to shareholders. Based on the last year's worth of payments, Broadridge Financial Solutions has a trailing yield of 2.0% on the current stock price of $144.82. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Broadridge Financial Solutions paid out more than half (59%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Broadridge Financial Solutions generated enough free cash flow to afford its dividend. It paid out 98% of its free cash flow in the form of dividends last year, which is outside the comfort zone for most businesses. Companies usually need cash more than they need earnings - expenses don't pay themselves - so it's not great to see it paying out so much of its cash flow.
While Broadridge Financial Solutions's dividends were covered by the company's reported profits, cash is somewhat more important, so it's not great to see that the company didn't generate enough cash to pay its dividend. Were this to happen repeatedly, this would be a risk to Broadridge Financial Solutions's ability to maintain its dividend.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. This is why it's a relief to see Broadridge Financial Solutions earnings per share are up 9.9% per annum over the last five years. Earnings have been growing at a steady rate, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the last 10 years, Broadridge Financial Solutions has lifted its dividend by approximately 16% 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.
Should investors buy Broadridge Financial Solutions for the upcoming dividend? Broadridge Financial Solutions is paying out a reasonable percentage of its income and an uncomfortably high 98% of its cash flow as dividends. At least earnings per share have been growing steadily. Bottom line: Broadridge Financial Solutions has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
So if you're still interested in Broadridge Financial Solutions despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. Be aware that Broadridge Financial Solutions is showing 3 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable...
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
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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.
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