It looks like Citrix Systems, Inc. (NASDAQ:CTXS) is about to go ex-dividend in the next four days. If you purchase the stock on or after the 10th of September, you won’t be eligible to receive this dividend, when it is paid on the 25th of September.
Citrix Systems’s next dividend payment will be US$0.35 per share. Last year, in total, the company distributed US$1.40 to shareholders. Based on the last year’s worth of payments, Citrix Systems has a trailing yield of 1.0% on the current stock price of $137.14. If you buy this business for its dividend, you should have an idea of whether Citrix Systems’s dividend is reliable and sustainable. We need to see whether the dividend is covered by earnings and if it’s growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable – hardly an ideal situation. Citrix Systems is paying out just 23% of its profit after tax, which is comfortably low and leaves plenty of breathing room in the case of adverse events. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Luckily it paid out just 18% of its free cash flow last year.
It’s positive to see that Citrix Systems’s dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. It’s encouraging to see Citrix Systems has grown its earnings rapidly, up 33% a year for the past five years. Citrix Systems earnings per share have been sprinting ahead like the Road Runner at a track and field day; scarcely stopping even for a cheeky “beep-beep”. We also like that it is reinvesting most of its profits in its business.’
The main way most investors will assess a company’s dividend prospects is by checking the historical rate of dividend growth. Citrix Systems’s dividend payments are effectively flat on where they were two years ago.
To Sum It Up
Should investors buy Citrix Systems for the upcoming dividend? Citrix Systems 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. It’s a promising combination that should mark this company worthy of closer attention.
So while Citrix Systems looks good from a dividend perspective, it’s always worthwhile being up to date with the risks involved in this stock. In terms of investment risks, we’ve identified 1 warning sign with Citrix Systems and understanding them should be part of your investment process.
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.
This article by Simply Wall St is general in nature. 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.