CDK Global (NASDAQ:CDK) Has Affirmed Its Dividend Of US$0.15

Simply Wall St
·3 min read

The board of CDK Global, Inc. (NASDAQ:CDK) has announced that it will pay a dividend of US$0.15 per share on the 30th of December. This means the annual payment is 1.5% of the current stock price, which is above the average for the industry.

Check out our latest analysis for CDK Global

CDK Global's Payment Has Solid Earnings Coverage

If the payments aren't sustainable, a high yield for a few years won't matter that much. However, prior to this announcement, CDK Global was quite comfortably covering its dividend with earnings and it was paying more than 75% of its free cash flow to shareholders. The business is returning a large chunk of its cash to shareholders, which means it is not being used to grow the business.

Looking forward, earnings per share is forecast to rise by 30.2% over the next year. If the dividend continues on this path, the payout ratio could be 28% by next year, which we think can be pretty sustainable going forward.

historic-dividend
historic-dividend

CDK Global Is Still Building Its Track Record

Even though the company has been paying a consistent dividend for a while, we would like to see a few more years before we feel comfortable relying on it. The dividend has gone from US$0.48 in 2014 to the most recent annual payment of US$0.60. This implies that the company grew its distributions at a yearly rate of about 3.2% over that duration. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.

CDK Global May Find It Hard To Grow The Dividend

Investors could be attracted to the stock based on the quality of its payment history. CDK Global hasn't seen much change in its earnings per share over the last five years. While growth may be thin on the ground, CDK Global could always pay out a higher proportion of earnings to increase shareholder returns.

Our Thoughts On CDK Global's Dividend

Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. While CDK Global is earning enough to cover the dividend, we are generally unimpressed with its future prospects. We would be a touch cautious of relying on this stock primarily for the dividend income.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Just as an example, we've come across 2 warning signs for CDK Global you should be aware of, and 1 of them is significant. We have also put together a list of global stocks with a solid dividend.

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.

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