Last update on 2024-06-28

Cognizant Technology Solutions (CTSH) - Dividend Analysis (Final Score: 7/8)

Discover the stability and performance of Cognizant Technology Solutions' (CTSH) dividend policy. This comprehensive analysis scored 7/8 on an 8-criteria system.

Short Analysis - Dividend Score: 7

We're running Cognizant Technology Solutions (CTSH) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

Cognizant Technology Solutions (CTSH) gets a high dividend score of 7 out of 8 based on an 8-criteria analysis. The criteria focus on indicators like dividend yield, growth rate, payout ratio, earnings and cash flow coverage, dividend stability, longevity of payment, and stock repurchases. Key highlights include a higher-than-industry-average dividend yield at 1.5358%, a consistently low payout ratio below 65%, and well-covered dividends by both earnings and cash flow. However, the company's short history of paying dividends since 2015, with some initial volatility, stands out as a minor drawback. Ultimately, CTSH showcases strong financial health, prudent dividend policies, and a commitment to returning value to the shareholders.

Insights for Value Investors Seeking Stable Income

Given CTSH's high dividend score and strong financial indicators, it's worth considering for investors seeking consistent dividends and financial stability. While the company has a shorter history of paying dividends, its recent trends and strong dividend coverage suggest potential for future growth and stability. As always, prospective investors should continue their due diligence, considering both historical performance and expected future financial health.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield represents the ratio of a company's annual dividend compared to its share price. A higher dividend yield can indicate a more attractive income stream for investors, making it a crucial metric to consider when evaluating dividend stocks.

Cognizant Technology Solutions (CTSH) has a current dividend yield of 1.5358%, which is higher than the industry average of 1.12%. Over the past several years, CTSH has shown an increasing dividend yield trend, from not paying dividends at all up to 2016 to gradually increasing their yield to current levels. This consistent increase indicates CTSH's commitment to returning value to shareholders. This trend is favorable for investors looking for a steady income stream. Given that the stock price has fluctuated but shown resilience, maintaining a higher yield compared to the industry average underlines its value proposition. However, it's also important to consider the sustainability of these dividends going forward.

Average annual Growth Rate higher than 5% in the last 20 years?

Explanation about the significance of Dividend Growth Rate

Criterion 1.1: The Dividend Growth Rate is higher than 5% in the last 20 years

Average annual Payout Ratio lower than 65% in the last 20 years?

Average Payout Ratio lower than 65% in the last 20 years.

Cognizant Technology Solutions (CTSH) has maintained a remarkably low average payout ratio of 8.56% over the past 20 years, which is significantly lower than the 65% threshold. This trend indicates prudent capital management and a conservative approach to dividend distribution, ensuring a strong financial cushion for future growth and adversity.

Dividends Well Covered by Earnings?

When assessing a company's dividend health, verifying that dividends are well covered by earnings is critical. Earnings per Share (EPS) should ideally be substantially higher than Dividend per Share (DPS) to ensure sustainability.

Analyzing CTSH's EPS and DPS data from 2003 to 2023, we see a clear pattern of prudent dividend distribution. Up until 2016, CTSH did not issue any dividends, suggesting a focus on growth and reinvestment of profits. From 2017 onwards, the DPS to EPS ratio started to emerge, increasing slightly each year. Notably, in 2017, the ratio was approximately 17.8%, steadily rising but remaining below 28% by 2023. This means that even at its highest payout ratio, the company's dividends constituted less than a third of its earnings. This conservative approach indicates a good dividend coverage, suggesting CTSH is well-positioned to maintain, or even increase, its dividend payouts without compromising financial stability. Therefore, this trend is favorable for the given criterion.

Dividends Well Covered by Cash Flow?

Dividends well covered by cash flow are a stellar indicator of a company's capability to sustain and possibly grow its dividend payouts. It's calculated as the ratio of dividend payouts to free cash flow.

Cognizant Technology Solutions (CTSH) shows a strong trend regarding dividends covered by cash flow. Calculations reveal a ratio below 1 for each year, peaking at around 29.36% in 2023. For example, in 2023, the free cash flow stood at approximately $2.013 billion, while the dividends payout was about $591 million. This ratio signals ample room to sustain or increase dividends, highlighting CTSH's financial robustness and promises to shareholders. This trend is favorable and demonstrates the company's prudent and sustainable dividend policies.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments indicates the company's consistent financial health and capacity to reward shareholders, making it a key metric for income-focused investors.

Analyzing the data for Cognizant Technology Solutions (CTSH), dividends per share were non-existent from 2003 to 2014. Initiated in 2015 at $0.45, it rose to $1 in 2016 then dropped to $0.8 in 2017. This 20% drop reflects instability in its early years of dividend distribution, posing concerns for income investors. However, consistent growth resumed post-2017 reaching $1.16 in 2023, neutralizing earlier apprehensions. Investors should weigh this initial volatility against recent consistent upwards trend, evaluating overall stability over the last few years.

Dividends Paid for Over 25 Years?

Explain the criterion for Cognizant Technology Solutions (CTSH) and why it is important to consider

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Reliable Stock Repurchases Over the Past 20 Years?

Elucidate the significance of reliable stock repurchases by a company like Cognizant Technology Solutions over the past 20 years.

Reliable stock repurchases indicate that Cognizant has been proactive in returning value to its shareholders, potentially enhancing earnings per share (EPS) and demonstrating a commitment to efficient capital allocation. Analyzing data over an extended period, such as 20 years, can reveal sustained patterns and provide insight into the company’s long-term strategies. It suggests a maturity in financial management and a strategic approach to utilizing excess cash.