Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Jack Henry & Associates, Inc. (NASDAQ:JKHY) is about to trade ex-dividend in the next three days. Typically, the ex-dividend date is one business day before the record date which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Therefore, if you purchase Jack Henry & Associates' shares on or after the 8th of September, you won't be eligible to receive the dividend, when it is paid on the 29th of September.
The company's next dividend payment will be US$0.46 per share, on the back of last year when the company paid a total of US$1.84 to shareholders. Calculating the last year's worth of payments shows that Jack Henry & Associates has a trailing yield of 1.0% on the current share price of $175.74. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! As a result, readers should always check whether Jack Henry & Associates has been able to grow its dividends, or if the dividend might be cut.
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. Jack Henry & Associates paid out a comfortable 43% of its profit last year. 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 44% of its free cash flow as dividends, a comfortable payout level for most companies.
It's positive to see that Jack Henry & Associates'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.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're encouraged by the steady growth at Jack Henry & Associates, with earnings per share up 5.6% on average 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. Organisations that reinvest heavily in themselves typically get stronger over time, which can bring attractive benefits such as stronger earnings and dividends.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the past 10 years, Jack Henry & Associates has increased its dividend at approximately 17% a year on average. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
To Sum It Up
Has Jack Henry & Associates got what it takes to maintain its dividend payments? Earnings per share growth has been growing somewhat, and Jack Henry & Associates is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. We would prefer to see earnings growing faster, but the best dividend stocks over the long term typically combine significant earnings per share growth with a low payout ratio, and Jack Henry & Associates is halfway there. There's a lot to like about Jack Henry & Associates, and we would prioritise taking a closer look at it.
So while Jack Henry & Associates looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. For example, we've found 1 warning sign for Jack Henry & Associates that we recommend you consider before investing in the business.
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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