It looks like Cognizant Technology Solutions Corporation (NASDAQ:CTSH) is about to go ex-dividend in the next 3 days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. 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. Thus, you can purchase Cognizant Technology Solutions’ shares before the 19th of August in order to receive the dividend, which the company will pay on the 31st of August.
The company’s next dividend payment will be US$0.24 per share, on the back of last year when the company paid a total of US$0.96 to shareholders. Based on the last year’s worth of payments, Cognizant Technology Solutions has a trailing yield of 1.2% on the current stock price of $77.63. If you buy this business for its dividend, you should have an idea of whether Cognizant Technology Solutions’s dividend is reliable and sustainable. As a result, readers should always check whether Cognizant Technology Solutions has been able to grow its dividends, or if the dividend might be cut.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fortunately Cognizant Technology Solutions’s payout ratio is modest, at just 29% of profit. A useful secondary check can be to evaluate whether Cognizant Technology Solutions generated enough free cash flow to afford its dividend. It paid out 23% of its free cash flow as dividends last year, which is conservatively low.
It’s positive to see that Cognizant Technology Solutions’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.
NasdaqGS:CTSH Historic Dividend August 15th 2021
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. This is why it’s a relief to see Cognizant Technology Solutions earnings per share are up 3.4% per annum over the last five years. Earnings per share growth in recent times has not been a standout. However, companies that see their growth slow can often choose to pay out a greater percentage of earnings to shareholders, which could see the dividend continue to rise.
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, four years ago, Cognizant Technology Solutions has lifted its dividend by approximately 12% a year on average. It’s encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
To Sum It Up
Has Cognizant Technology Solutions got what it takes to maintain its dividend payments? Earnings per share have been growing moderately, and Cognizant Technology Solutions 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. It might be nice to see earnings growing faster, but Cognizant Technology Solutions is being conservative with its dividend payouts and could still perform reasonably over the long run. Cognizant Technology Solutions looks solid on this analysis overall, and we’d definitely consider investigating it more closely.
So while Cognizant Technology Solutions looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. Case in point: We’ve spotted 1 warning sign for Cognizant Technology Solutions you should be aware of.
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.
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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