The board of CDK Global, Inc. (NASDAQ:CDK) has announced that it will pay a dividend of US$0.15 per share on the 30th of March. This means the annual payment is 1.4% of the current stock price, which is above the average for the industry.

See our latest analysis for CDK Global

CDK Global's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, based ont he last payment, CDK Global was earning enough to cover the dividend pretty comfortably. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Looking forward, earnings per share is forecast to rise by 30.2% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 28%, which is in the range that makes us comfortable with the sustainability of the dividend.

CDK Global Doesn't Have A Long Payment History

It is great to see that CDK Global has been paying a stable dividend for a number of years now, however we want to be a bit cautious about whether this will remain true through a full economic cycle. The first annual payment during the last 7 years was US$0.48 in 2015, and the most recent fiscal year payment was US$0.60. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

CDK Global May Find It Hard To Grow The Dividend

Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, CDK Global's EPS was effectively flat over the past five years, which could stop the company from paying more every year. While growth may be thin on the ground, CDK Global could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On CDK Global's Dividend

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about CDK Global's payments, as there could be some issues with sustaining them into the future. The low payout ratio is a redeeming feature, but generally we are not too happy with the payments CDK Global has been making. We would probably look elsewhere for an income investment.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for CDK Global (of which 1 is potentially serious!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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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.