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Should Income Investors Look At Sylogist Ltd. (CVE:SYZ) Before Its Ex-Dividend?

Simply Wall St

It looks like Sylogist Ltd. (CVE:SYZ) is about to go ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 29th of August will not receive this dividend, which will be paid on the 11th of September.

Sylogist's next dividend payment will be CA$0.10 per share, and in the last 12 months, the company paid a total of CA$0.40 per share. Calculating the last year's worth of payments shows that Sylogist has a trailing yield of 3.6% on the current share price of CA$11.25. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. As a result, readers should always check whether Sylogist has been able to grow its dividends, or if the dividend might be cut.

Check out our latest analysis for Sylogist

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Sylogist paid out more than half (67%) of its earnings last year, which is a regular payout ratio for 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. Over the last year it paid out 63% of its free cash flow as dividends, within the usual range for most companies.

It's positive to see that Sylogist'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.

TSXV:SYZ Historical Dividend Yield, August 25th 2019

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. For this reason, we're glad to see Sylogist's earnings per share have risen 20% per annum over the last five years. Sylogist is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Sylogist has delivered 21% dividend growth per year on average over the past 10 years. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

From a dividend perspective, should investors buy or avoid Sylogist? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Sylogist is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. While it does have some good things going for it, we're a bit ambivalent and it would take more to convince us of Sylogist's dividend merits.

Wondering what the future holds for Sylogist? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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.