Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Fidelity National Information Services, Inc. (NYSE:FIS) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 12th of September in order to receive the dividend, which the company will pay on the 27th of September.
Fidelity National Information Services's next dividend payment will be US$0.35 per share. Last year, in total, the company distributed US$1.40 to shareholders. Based on the last year's worth of payments, Fidelity National Information Services stock has a trailing yield of around 1.0% on the current share price of $137.67. If you buy this business for its dividend, you should have an idea of whether Fidelity National Information Services's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fidelity National Information Services is paying out an acceptable 58% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 31% of its free cash flow in the past year.
It's positive to see that Fidelity National Information Services'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.
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 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 Fidelity National Information Services, with earnings per share up 6.5% 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. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. In the past 10 years, Fidelity National Information Services has increased its dividend at approximately 21% 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 Fidelity National Information Services got what it takes to maintain its dividend payments? Earnings per share growth has been modest and Fidelity National Information Services paid out over half of its profits and less than half of its free cash flow, although both payout ratios are within normal limits. All things considered, we are not particularly enthused about Fidelity National Information Services from a dividend perspective.
Ever wonder what the future holds for Fidelity National Information Services? See what the 21 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.