Readers hoping to buy Broadridge Financial Solutions, Inc. (NYSE:BR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company’s books in order 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. This means that investors who purchase Broadridge Financial Solutions’ shares 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$0.80 per share. Last year, in total, the company distributed US$3.20 to shareholders. Based on the last year’s worth of payments, Broadridge Financial Solutions has a trailing yield of 1.7% on the current stock price of $191.36. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! As a result, readers should always check whether Broadridge Financial Solutions has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Broadridge Financial Solutions
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 (52%) 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. Thankfully its dividend payments took up just 38% of the free cash flow it generated, which is a comfortable payout ratio.
It’s positive to see that Broadridge Financial 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.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we’re encouraged by the steady growth at Broadridge Financial Solutions, with earnings per share up 9.3% on average over the last five years. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. If management lifts the payout ratio further, we’d take this as a tacit signal that the company’s growth prospects are slowing.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Broadridge Financial Solutions has lifted its dividend by approximately 16% 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.
Final Takeaway
Is Broadridge Financial Solutions worth buying for its dividend? While earnings per share growth has been modest, Broadridge Financial Solutions’s dividend payouts are around an average level; without a sharp change in earnings we feel that the dividend is likely somewhat sustainable. Pleasingly the company paid out a conservatively low percentage of its free cash flow. In summary, while it has some positive characteristics, we’re not inclined to race out and buy Broadridge Financial Solutions today.
So while Broadridge Financial Solutions looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. For example, we’ve found 2 warning signs for Broadridge Financial Solutions that we recommend you consider before investing in the business.
Generally, we wouldn’t recommend just buying the first dividend stock you see. Here’s a curated list of interesting stocks that are strong dividend payers.
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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.
