Is It Worth Considering CSG Systems International, Inc. (NASDAQ:CSGS) For Its Upcoming Dividend?
Readers hoping to buy CSG Systems International, Inc. (NASDAQ:CSGS) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a 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. Meaning, you will need to purchase CSG Systems International's shares before the 11th of June to receive the dividend, which will be paid on the 25th of June.
The company's next dividend payment will be US$0.25 per share. Last year, in total, the company distributed US$1.00 to shareholders. Calculating the last year's worth of payments shows that CSG Systems International has a trailing yield of 2.3% on the current share price of $43.27. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether CSG Systems International can afford its dividend, and if the dividend could grow.
See our latest analysis for CSG Systems International
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. CSG Systems International paid out 54% of its earnings to investors last year, a normal payout level for most businesses. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. It paid out 22% of its free cash flow as dividends last year, which is conservatively low.
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 shrinking earnings are tricky from a dividend perspective. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. That's why it's not ideal to see CSG Systems International's earnings per share have been shrinking at 2.5% a year over the previous five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past eight years, CSG Systems International has increased its dividend at approximately 6.6% a year on average. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
Final Takeaway
Should investors buy CSG Systems International 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. In summary, it's hard to get excited about CSG Systems International from a dividend perspective.
So if you want to do more digging on CSG Systems International, you'll find it worthwhile knowing the risks that this stock faces. Every company has risks, and we've spotted 4 warning signs for CSG Systems International you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top 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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