It looks like Progress Software Corporation (NASDAQ:PRGS) is about to go ex-dividend in the next 4 days. Ex-dividend means that investors that purchase the stock on or after the 30th of November will not receive this dividend, which will be paid on the 15th of December.
Progress Software's next dividend payment will be US$0.17 per share, and in the last 12 months, the company paid a total of US$0.70 per share. Looking at the last 12 months of distributions, Progress Software has a trailing yield of approximately 1.8% on its current stock price of $39.93. If you buy this business for its dividend, you should have an idea of whether Progress Software's dividend is reliable and sustainable. As a result, readers should always check whether Progress Software has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Progress Software is paying out an acceptable 52% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether Progress Software generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 22% of its cash flow last year.
It's positive to see that Progress Software'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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. 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 Progress Software, with earnings per share up 5.6% on average over the last five years. Decent historical earnings per share growth suggests Progress Software has been effectively growing value for shareholders. However, it's now paying out more than half its earnings as dividends. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Progress Software has delivered an average of 8.8% per year annual increase in its dividend, based on the past four years of dividend payments. 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 Progress Software for the upcoming dividend? Earnings per share growth has been modest and Progress Software 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 Progress Software from a dividend perspective.
In light of that, while Progress Software has an appealing dividend, it's worth knowing the risks involved with this stock. To help with this, we've discovered 4 warning signs for Progress Software that you should be aware of before investing in their shares.
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.
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. 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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