Be Sure To Check Out Paycom Software, Inc. (NYSE:PAYC) Before It Goes Ex-Dividend
It looks like Paycom Software, Inc. (NYSE:PAYC) is about to go ex-dividend in the next four 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. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Paycom Software's shares before the 1st of March in order to be eligible for the dividend, which will be paid on the 18th of March.
The company's next dividend payment will be US$0.375 per share, on the back of last year when the company paid a total of US$1.50 to shareholders. Based on the last year's worth of payments, Paycom Software has a trailing yield of 0.8% on the current stock price of US$184.67. If you buy this business for its dividend, you should have an idea of whether Paycom Software's dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for Paycom Software
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. Paycom Software is paying out just 19% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. 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. Luckily it paid out just 22% of its free cash flow last year.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Paycom Software has grown its earnings rapidly, up 20% a year for the past five years. Paycom Software looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
Unfortunately Paycom Software has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
To Sum It Up
Is Paycom Software an attractive dividend stock, or better left on the shelf? We love that Paycom Software is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. These characteristics suggest the company is reinvesting in growing its business, while the conservative payout ratio also implies a reduced risk of the dividend being cut in the future. Paycom Software looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Paycom Software is facing. To help with this, we've discovered 1 warning sign for Paycom Software that you should be aware of before investing in their shares.
If you're in the market for strong dividend payers, we recommend checking 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.
