U.S. markets closed
  • S&P 500

    3,585.62
    -54.85 (-1.51%)
     
  • Dow 30

    28,725.51
    -500.10 (-1.71%)
     
  • Nasdaq

    10,575.62
    -161.89 (-1.51%)
     
  • Russell 2000

    1,664.72
    -10.21 (-0.61%)
     
  • Crude Oil

    79.72
    -1.51 (-1.86%)
     
  • Gold

    1,670.50
    +1.90 (+0.11%)
     
  • Silver

    19.03
    +0.32 (+1.70%)
     
  • EUR/USD

    0.9805
    -0.0014 (-0.15%)
     
  • 10-Yr Bond

    3.8040
    +0.0570 (+1.52%)
     
  • GBP/USD

    1.1149
    +0.0026 (+0.23%)
     
  • USD/JPY

    144.7830
    +0.3400 (+0.24%)
     
  • BTC-USD

    19,483.77
    +81.41 (+0.42%)
     
  • CMC Crypto 200

    445.43
    +2.00 (+0.45%)
     
  • FTSE 100

    6,893.81
    +12.22 (+0.18%)
     
  • Nikkei 225

    25,937.21
    -484.84 (-1.83%)
     

Open Text Corporation (NASDAQ:OTEX) Will Pay A US$0.24 Dividend In Three Days

·4 min read

Open Text Corporation (NASDAQ:OTEX) stock is about to trade ex-dividend in three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is an important date to be aware of as any purchase of the stock made on or after this date might mean a late settlement that doesn't show on the record date. Thus, you can purchase Open Text's shares before the 1st of September in order to receive the dividend, which the company will pay on the 23rd of September.

The company's upcoming dividend is US$0.24 a share, following on from the last 12 months, when the company distributed a total of US$0.97 per share to shareholders. Based on the last year's worth of payments, Open Text has a trailing yield of 3.0% on the current stock price of $31.89. If you buy this business for its dividend, you should have an idea of whether Open Text's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.

Check out our latest analysis for Open Text

Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Open Text is paying out an acceptable 60% of its profit, a common payout level among most companies. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Thankfully its dividend payments took up just 27% of the free cash flow it generated, which is a comfortable payout ratio.

It's positive to see that Open Text'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.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're discomforted by Open Text's 18% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past nine years, Open Text has increased its dividend at approximately 14% a year on average. That's interesting, but the combination of a growing dividend despite declining earnings can typically only be achieved by paying out more of the company's profits. This can be valuable for shareholders, but it can't go on forever.

Final Takeaway

Should investors buy Open Text for the upcoming dividend? We're not enthused by the declining earnings per share, although at least the company's payout ratio is within a reasonable range, meaning it may not be at imminent risk of a dividend cut. Overall, it's hard to get excited about Open Text from a dividend perspective.

With that being said, if dividends aren't your biggest concern with Open Text, you should know about the other risks facing this business. For example - Open Text has 2 warning signs we think you should be aware of.

If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here