CDK Global, Inc. ( NASDAQ:CDK ) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 30th of August in order to receive the dividend, which the company will pay on the 27th of September.
CDK Global's next dividend payment will be US$0.15 per share, and in the last 12 months, the company paid a total of US$0.60 per share. Calculating the last year's worth of payments shows that CDK Global has a trailing yield of 1.4% on the current share price of $42.61. 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! So we need to investigate whether CDK Global can afford its dividend, and if the dividend could grow.
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. CDK Global paid out a comfortable 32% of its profit last year. A useful secondary check can be to evaluate whether CDK Global generated enough free cash flow to afford its dividend. What's good is that dividends were well covered by free cash flow, with the company paying out 19% of its cash flow last year.
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.
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 decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at CDK Global, with earnings per share up 5.6% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. CDK Global has delivered an average of 4.6% per year annual increase in its dividend, based on the past 5 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Should investors buy CDK Global for the upcoming dividend? Earnings per share growth has been growing somewhat, and CDK Global 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 CDK Global is halfway there. CDK Global looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Curious what other investors think of CDK Global? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow .
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.
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