Deluxe (NYSE:DLX) Will Pay A Dividend Of $0.30
Deluxe Corporation (NYSE:DLX) will pay a dividend of $0.30 on the 6th of September. This means the annual payment is 5.1% of the current stock price, which is above the average for the industry.
Check out our latest analysis for Deluxe
Deluxe's Payment Has Solid Earnings Coverage
If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Deluxe's dividend made up quite a large proportion of earnings but only 58% of free cash flows. In general, cash flows are more important than earnings, so we are comfortable that the dividend will be sustainable going forward, especially with so much cash left over for reinvestment.
The next year is set to see EPS grow by 42.0%. If the dividend continues along recent trends, we estimate the payout ratio will be 63%, which would make us comfortable with the sustainability of the dividend, despite the levels currently being quite high.
Deluxe Has A Solid Track Record
Even over a long history of paying dividends, the company's distributions have been remarkably stable. Since 2012, the annual payment back then was $1.00, compared to the most recent full-year payment of $1.20. This implies that the company grew its distributions at a yearly rate of about 1.8% over that duration. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
Dividend Growth Potential Is Shaky
The company's investors will be pleased to have been receiving dividend income for some time. However, things aren't all that rosy. Over the past five years, it looks as though Deluxe's EPS has declined at around 22% a year. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. 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.
In Summary
Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. The company has been bring in plenty of cash to cover the dividend, but we don't necessarily think that makes it a great dividend stock. We would probably look elsewhere for an income investment.
Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Just as an example, we've come across 3 warning signs for Deluxe you should be aware of, and 1 of them is concerning. Is Deluxe not quite the opportunity you were looking for? Why not check out our selection of top 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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