We Wouldn't Be Too Quick To Buy Fidelity National Information Services, Inc. (NYSE:FIS) Before It Goes Ex-Dividend
It looks like Fidelity National Information Services, Inc. (NYSE:FIS) is about to go ex-dividend in the next four days. The ex-dividend date is one business day before the record date, which is the cut-off date for shareholders to be present on the company's books to be eligible for a dividend payment. The ex-dividend date is important because any transaction on a stock needs to have been settled before the record date in order to be eligible for a dividend. Accordingly, Fidelity National Information Services investors that purchase the stock on or after the 8th of December will not receive the dividend, which will be paid on the 23rd of December.
The company's next dividend payment will be US$0.47 per share. Last year, in total, the company distributed US$1.88 to shareholders. Based on the last year's worth of payments, Fidelity National Information Services has a trailing yield of 2.5% on the current stock price of $74.06. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Fidelity National Information Services has been able to grow its dividends, or if the dividend might be cut.
Check out our latest analysis for Fidelity National Information Services
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Fidelity National Information Services distributed an unsustainably high 117% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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. It distributed 45% of its free cash flow as dividends, a comfortable payout level for most companies.
It's good to see that while Fidelity National Information Services's dividends were not covered by profits, at least they are affordable from a cash perspective. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If earnings fall far enough, the company could be forced to cut its dividend. That explains why we're not overly excited about Fidelity National Information Services's flat earnings over the past five years. It's better than seeing them drop, certainly, but over the long term, all of the best dividend stocks are able to meaningfully grow their earnings per share.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, Fidelity National Information Services has lifted its dividend by approximately 8.9% a year on average.
Should investors buy Fidelity National Information Services for the upcoming dividend? Earnings per share have been effectively flat, which is a bit of a concern given the company is paying out 117% of its profit as dividends, which we feel is uncomfortably high. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
Having said that, if you're looking at this stock without much concern for the dividend, you should still be familiar of the risks involved with Fidelity National Information Services. Our analysis shows 1 warning sign for Fidelity National Information Services and you should be aware of this before buying any shares.
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.
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