Progress Software Corporation ( NASDAQ:PRGS ) is about to trade ex-dividend in the next 3 days. You can purchase shares before the 29th of August in order to receive the dividend, which the company will pay on the 16th of September.
Progress Software's upcoming dividend is US$0.15 a share, following on from the last 12 months, when the company distributed a total of US$0.62 per share to shareholders. Looking at the last 12 months of distributions, Progress Software has a trailing yield of approximately 1.6% on its current stock price of $37.85. If you buy this business for its dividend, you should have an idea of whether Progress Software's dividend is reliable and sustainable. So we need to investigate whether Progress Software can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. That's why it's good to see Progress Software paying out a modest 50% of its earnings. 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. Luckily it paid out just 25% of its free 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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Progress Software's earnings per share have risen 11% per annum over the last 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.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Progress Software has delivered an average of 7.4% per year annual increase in its dividend, based on the past 3 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
Should investors buy Progress Software for the upcoming dividend? Progress Software has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. There's a lot to like about Progress Software, and we would prioritise taking a closer look at it.
Ever wonder what the future holds for Progress Software? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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