Regular readers will know that we love our dividends at Simply Wall St, which is why it’s exciting to see Cognizant Technology Solutions Corporation (NASDAQ:CTSH) is about to trade ex-dividend in the next 3 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 of consequence because whenever a stock is bought or sold, the trade takes at least one business day to settle. Therefore, if you purchase Cognizant Technology Solutions’ shares on or after the 19th of May, you won’t be eligible to receive the dividend, when it is paid on the 28th of May.
The company’s next dividend payment will be US$0.31 per share, and in the last 12 months, the company paid a total of US$1.24 per share. Last year’s total dividend payments show that Cognizant Technology Solutions has a trailing yield of 1.5% on the current share price of US$80.36. If you buy this business for its dividend, you should have an idea of whether Cognizant Technology Solutions’s dividend is reliable and sustainable. As a result, readers should always check whether Cognizant Technology Solutions has been able to grow its dividends, or if the dividend might be cut.
We’ve found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.
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. Fortunately Cognizant Technology Solutions’s payout ratio is modest, at just 26% of profit. 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. Fortunately, it paid out only 28% of its free cash flow in the past year.
It’s positive to see that Cognizant Technology Solutions’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.
View our latest analysis for Cognizant Technology Solutions
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings fall far enough, the company could be forced to cut its dividend. This is why it’s a relief to see Cognizant Technology Solutions earnings per share are up 7.7% per annum over the last five years. Management have been reinvested more than half of the company’s earnings within the business, and the company has been able to grow earnings with this retained capital. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
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