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The board of Juniper Networks, Inc. (NYSE:JNPR) has announced that it will pay a dividend on the 22nd of September, with investors receiving US$0.20 per share. Based on this payment, the dividend yield will be 2.8%, which is fairly typical for the industry.
Juniper Networks' Dividend Is Well Covered By Earnings
We aren't too impressed by dividend yields unless they can be sustained over time. Prior to this announcement, the company was paying out 127% of what it was earning, however the dividend was quite comfortably covered by free cash flows at a cash payout ratio of only 45%. Healthy cash flows are always a positive sign, especially when they quite easily cover the dividend.
EPS is set to grow by 65.3% over the next year. If the dividend continues growing along recent trends, we estimate the payout ratio could reach 90%, which is on the higher side, but certainly still feasible.
Juniper Networks Is Still Building Its Track Record
Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. Since 2014, the dividend has gone from US$0.40 to US$0.80. This works out to be a compound annual growth rate (CAGR) of approximately 10% a year over that time. It is always nice to see strong dividend growth, but with such a short payment history we wouldn't be inclined to rely on it until a longer track record can be developed.
Dividend Growth Potential Is Shaky
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. Let's not jump to conclusions as things might not be as good as they appear on the surface. Juniper Networks' EPS has fallen by approximately 17% per year during the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
The Dividend Could Prove To Be Unreliable
In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Juniper Networks' payments, as there could be some issues with sustaining them into the future. In the past, the payments have been unstable, but over the short term the dividend could be reliable, with the company generating enough cash to cover it. We don't think Juniper Networks is a great stock to add to your portfolio if income is your focus.
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. Taking the debate a bit further, we've identified 4 warning signs for Juniper Networks that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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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