Don't Race Out To Buy Xerox Holdings Corporation (NASDAQ:XRX) Just Because It's Going Ex-Dividend – Simply Wall St
Stock Analysis
Xerox Holdings Corporation (NASDAQ:XRX) is about to trade ex-dividend in the next four days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase Xerox Holdings' shares before the 29th of September in order to be eligible for the dividend, which will be paid on the 31st of October.
The company's next dividend payment will be US$0.25 per share, on the back of last year when the company paid a total of US$1.00 to shareholders. Calculating the last year's worth of payments shows that Xerox Holdings has a trailing yield of 7.0% on the current share price of $14.33. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Xerox Holdings can afford its dividend, and if the dividend could grow.
See our latest analysis for Xerox Holdings
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. Xerox Holdings paid a dividend last year despite being unprofitable. This might be a one-off event, but it's not a sustainable state of affairs in the long run. Considering the lack of profitability, we also need to check if the company generated enough cash flow to cover the dividend payment. If Xerox Holdings didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. It paid out 87% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Xerox Holdings was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Xerox Holdings has delivered an average of 3.9% per year annual increase in its dividend, based on the past 10 years of dividend payments.
Get our latest analysis on Xerox Holdings's balance sheet health here.
From a dividend perspective, should investors buy or avoid Xerox Holdings? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of Xerox Holdings.
With that in mind though, if the poor dividend characteristics of Xerox Holdings don't faze you, it's worth being mindful of the risks involved with this business. To that end, you should learn about the 2 warning signs we've spotted with Xerox Holdings (including 1 which is a bit concerning).
A common investing mistake is buying the first interesting stock you see. Here you can find a full list of high-yield dividend stocks.
Find out whether Xerox Holdings is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
Xerox Holdings Corporation, a workplace technology company, designs, develops, and sells document management systems and solutions in the United States, Europe, Canada, and internationally.
The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.
Read more about these checks in the individual report sections or in our analysis model.
Undervalued average dividend payer.
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