The board of Global Payments Inc. (NYSE:GPN) has announced that it will pay a dividend of $0.25 per share on the 27th of December. Based on this payment, the dividend yield will be 0.9%, which is fairly typical for the industry.
See our latest analysis for Global Payments
While it is always good to see a solid dividend yield, we should also consider whether the payment is feasible. However, Global Payments’ earnings easily cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.
Over the next year, EPS is forecast to expand by 58.5%. If the dividend continues along recent trends, we estimate the payout ratio will be 15%, which is in the range that makes us comfortable with the sustainability of the dividend.
The company’s dividend history has been marked by instability, with at least one cut in the last 10 years. Since 2014, the annual payment back then was $0.04, compared to the most recent full-year payment of $1.00. This implies that the company grew its distributions at a yearly rate of about 38% over that duration. Global Payments has grown distributions at a rapid rate despite cutting the dividend at least once in the past. Companies that cut once often cut again, so we would be cautious about buying this stock solely for the dividend income.
Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. It’s encouraging to see that Global Payments has been growing its earnings per share at 17% a year over the past five years. Growth in EPS bodes well for the dividend, as does the low payout ratio that the company is currently reporting.
Overall, we think that this is a great income investment, and we think that maintaining the dividend this year may have been a conservative choice. Earnings are easily covering distributions, and the company is generating plenty of cash. All in all, this checks a lot of the boxes we look for when choosing an income stock.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. For example, we’ve picked out 3 warning signs for Global Payments that investors should know about before committing capital to this stock. Is Global Payments not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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.
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