The board of Global Payments Inc. ($GPN) has announced that it will pay a dividend on the 30th of June, with investors receiving $0.25 per share. This payment means the dividend yield will be 1.0%, which is below the average for the industry.
Global Payments Is Paying Out More Than It Is Earning
If it is predictable over a long period, even low dividend yields can be attractive. Global Payments is not generating a profit, but its free cash flows easily cover the dividend, leaving plenty for reinvestment in the business. In general, cash flows are more important than the more traditional measures of profit so we feel pretty comfortable with the dividend at this level.
Over the next year, EPS is forecast to expand by 117.5%. If the dividend continues on its recent course, the company could be paying out several times what it earns in the next 12 months, which could start applying pressure to the balance sheet.
Dividend Volatility
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. Since 2013, the dividend has gone from $0.04 total annually to $1.00. This means that it has been growing its distributions at 38% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down in the past as well, so that makes us cautious.
The Dividend Has Limited Growth Potential
Growing earnings per share could be a mitigating factor when considering past fluctuations in the dividend. Global Payments' earnings per share has shrunk by 24% a year over the past five years. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
The Dividend Could Prove To Be Unreliable
Overall, it's nice to see a consistent dividend payment, but I think that longer term, the current level of payment might be unsustainable. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows, it could prove to be reliable over the short term. This company is not in the top tier of income-providing stocks.
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