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It looks like Amdocs Limited (NASDAQ:DOX) is about to go ex-dividend in the next 4 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 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. Accordingly, Amdocs investors that purchase the stock on or after the 30th of December will not receive the dividend, which will be paid on the 28th of January.
The company's next dividend payment will be US$0.36 per share, on the back of last year when the company paid a total of US$1.58 to shareholders. Based on the last year's worth of payments, Amdocs has a trailing yield of 1.9% on the current stock price of $74.33. If you buy this business for its dividend, you should have an idea of whether Amdocs's dividend is reliable and sustainable. So we need to investigate whether Amdocs can afford its dividend, and if the dividend could grow.
Check out our latest analysis for Amdocs
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Amdocs paid out a comfortable 26% 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 paid out 25% of its free cash flow as dividends last year, which is conservatively low.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fortunately for readers, Amdocs's earnings per share have been growing at 15% a year for the past five years. Earnings per share have been growing rapidly and the company is retaining a majority of its earnings within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.