Dividend-News

Xerox: Dividend Dynamo or the Next Blowup?

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  Published Wed, 22 Feb 2012 15:31:31 GMT on The Motley Fool
  

  
  

  Dividend investing is a tried-and-true strategy for generating strong, steady returns in economies both good and bad. But as corporate America's slew of dividend cuts and suspensions over the past few years has demonstrated, it's not enough simply to buy a high yield. You also need to make sure those payouts are sustainable.
  Let's examine how Xerox (NYSE: XRX) stacks up in four critical areas to determine whether it's a dividend dynamo or a disaster in the making.
  1. Yield
  First and foremost, dividend investors like a large forward yield. But if a yield gets too high, it may reflect investors' doubts about the payout's sustainability. If investors had confidence in the stock, they'd be buying it, driving up the share price and shrinking the yield.
  Xerox yields 2%, basically in line with the S&P 500.
  2. Payout ratio
  The payout ratio might be the most important metric for judging dividend sustainability. It compares the amount of money a company paid out in dividends last year to the earnings it generated. A ratio that's too high -- say, greater than 80% of earnings -- indicates that the company may be stretching to make payouts it can't afford, even when its dividend yield doesn't seem particularly high.
  Xerox has a modest payout ratio of 20%.
  3. Balance sheet
  The best dividend payers have the financial fortitude to fund growth and respond to whatever the economy and competitors throw at them. The interest coverage ratio indicates whether a company is having trouble meeting its interest payments -- any ratio less than 5 is a warning sign. Meanwhile, the debt-to-equity ratio is a good measure of a company's total debt burden.
  Xerox has a debt-to-equity ratio of 70% and an interest coverage rate of about seven times.
  4. Growth
  A large dividend is nice; a large growing dividend is even better. To support a growing dividend, we also want to see earnings growth.
  Over the past five years, Xerox's earnings per share have shrunk at an annual rate of 6%. Its dividend, which was reinstated in December 2007 after a multiyear hiatus, has held steady at $0.43 per quarter.
  The Foolish bottom line
  So, is Xerox a dividend dynamo? Probably not. Although it has a modest payout ratio and reasonable debt burden, it doesn't yet have a particularly high yield or earnings growth.... Read more
  

  Stock name									ISIN	Last trade		P/E	Earnings/Share	Dividend/Share	Dividend yield
  XEROX									US9841211033	8.81		9.8	0.92	0.23	2.61

  
  

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