Today is Monday, March 16, 2020, and this is your daily dividend safety update. Today we’re looking at DXC Technology (NYSE: DXC) stock to see whether its 7.79% dividend is safe.
High-yield dividend stocks can be very useful to investors of all ages. Younger investors can use dividend reinvestment plans (DRIPs) to grow their portfolios exponentially over time, while retirees can use them to generate passive income.
In both cases, it’s preferable to buy dividend stocks with steady or rising dividends – and avoid those that cut their dividends.
Let’s look at the payout ratio, cash flow growth, and dividend history of DXC Technology to gauge the probability of a dividend cut in the next few years.
Payout Ratio (Dividends/Earnings)
DXC Technology has a payout ratio of 13.25%. That’s low enough for us! Payout ratio equals dividends per share divided by earnings per share. A low payout ratio indicates that the company has plenty of money to cover its dividend. We’d be more concerned if the ratio was closer to 100% (or over it).
Cash Flow Growth Year-Over-Year
DXC Technology has grown its cash flow by 356.52% in the last year. That’s a good omen for dividend investors! When a company grows its cash flow, it can use some of that extra cash to strengthen — or even raise — its dividend.
Dividend History & Recent Cuts
DXC Technology has a recent history of dividend cuts. In fact, it’s only been 5 years since the last cut. That’s not a good sign. Companies that have recently cut their dividend are generally more likely to cut them again.
The Takeaway
DXC Technology stock has failed 1 of our 3 dividend safety metrics. With that in mind, we believe a dividend cut is possible in the next few years.
Editor’s Note: We’ve been keeping an eye on some dividend stocks that could be better for your income portfolio than DXC Technology. These dividends are much bigger — and safer — than the paltry yields many investors settle for. Enter your email below to learn more.
