Investors who want to cash in on Paychex Inc's ( NASDAQ:PAYX ) upcoming dividend of $0.5 per share have only 4 days left to buy the shares before its ex-dividend date, 31 January 2018, in time for dividends payable on the 15 February 2018. Is this future income stream a compelling catalyst for dividend investors to think about the stock as an investment today? Let's take a look at Paychex's most recent financial data to examine its dividend characteristics in more detail. Check out our latest analysis for Paychex
5 checks you should do on a dividend stock
When assessing a stock as a potential addition to my dividend Portfolio, I look at these five areas:
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Is it paying an annual yield above 75% of dividend payers?
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Has its dividend been stable over the past (i.e. no missed payments or significant payout cuts)?
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Has dividend per share risen in the past couple of years?
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Does earnings amply cover its dividend payments?
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Will it be able to continue to payout at the current rate in the future?
How well does Paychex fit our criteria?
The company currently pays out 81.83% of its earnings as a dividend, according to its trailing twelve-month data, which means that the dividend is covered by earnings. However, going forward, analysts expect PAYX's payout to fall to 70.79% of its earnings, which leads to a dividend yield of 2.93%. However, EPS should increase to $2.64, meaning that the lower payout ratio does not necessarily implicate a lower dividend payment. If dividend is a key criteria in your investment consideration, then you need to make sure the dividend stock you're eyeing out is reliable in its payments. PAYX has increased its DPS from $1.2 to $2 in the past 10 years. During this period it has not missed a payment, as one would expect for a company increasing its dividend. These are all positive signs of a great, reliable dividend stock. Relative to peers, Paychex generates a yield of 2.94%, which is high for IT stocks but still below the market's top dividend payers.
Next Steps:
With this in mind, I definitely rank Paychex as a strong dividend stock, and makes it worth further research for anyone who likes steady income generation from their portfolio. Given that this is purely a dividend analysis, I recommend taking sufficient time to understand its core business and determine whether the company and its investment properties suit your overall goals. Below, I've compiled three fundamental factors you should look at:
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1. Future Outlook: What are well-informed industry analysts predicting for PAYX's future growth? Take a look at our free research report of analyst consensus for PAYX's outlook.
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2. Valuation: What is PAYX worth today? Even if the stock is a cash cow, it's not worth an infinite price. The intrinsic value infographic in our free research report helps visualize whether PAYX is currently mispriced by the market.
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3. Other Dividend Rockstars: Are there better dividend payers with stronger fundamentals out there? Check out our free list of these great stocks here .
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
