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The board of Information Services Corporation (TSE:ISV) has announced that it will pay a dividend of CA$0.23 per share on the 15th of April. This makes the dividend yield 4.3%, which will augment investor returns quite nicely.
Check out our latest analysis for Information Services
Information Services' Earnings Easily Cover The Distributions
We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Based on the last payment, Information Services was quite comfortably earning enough to cover the dividend. This means that a large portion of its earnings are being retained to grow the business.
Looking forward, earnings per share is forecast to rise by 1.9% over the next year. If the dividend continues along recent trends, we estimate the payout ratio will be 53%, which is in the range that makes us comfortable with the sustainability of the dividend.
Information Services Has A Solid Track Record
The company has a sustained record of paying dividends with very little fluctuation. The annual payment during the last 10 years was CA$0.80 in 2013, and the most recent fiscal year payment was CA$0.92. This means that it has been growing its distributions at 1.4% per annum over that time. Slow and steady dividend growth might not sound that exciting, but dividends have been stable for ten years, which we think makes this a fairly attractive offer.
The Dividend's Growth Prospects Are Limited
Investors could be attracted to the stock based on the quality of its payment history. Unfortunately, Information Services' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. Growth of 1.8% may indicate that the company has limited investment opportunity so it is returning its earnings to shareholders instead. This isn't bad in itself, but unless earnings growth pick up we wouldn't expect dividends to grow either.
We Really Like Information Services' Dividend
In summary, it is good to see that the dividend is staying consistent, and we don't think there is any reason to suspect this might change over the medium term. The company is easily earning enough to cover its dividend payments and it is great to see that these earnings are being translated into cash flow. All of these factors considered, we think this has solid potential as a dividend stock.
It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. However, there are other things to consider for investors when analysing stock performance. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 5 analysts we track are forecasting for Information Services for free with public analyst estimates for the company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.