Digital General: Despite Dividend Announcement, Skepticism Remains

The technology conglomerate Gen Digital has announced a dividend of $0.125 per share to be distributed on September 11. This corresponds to a dividend yield of 2.0%, which is above the industry average. Nonetheless, a high dividend payout over several years is of little value if it is not sustainable. Fortunately, Gen Digital’s dividends are easily covered by the company's earnings. This suggests that a significant portion of the profits is being reinvested in the business to foster growth. Earnings per share (EPS) growth of 109.0% is expected for the coming year. If the current dividend trend continues, the payout ratio could be 24% next year, which can be deemed sustainable. Though the company has been paying dividends for a long time, the payout has been cut at least once in the past ten years. The annual dividend decreased from $0.60 in 2014 to $0.50 recently. This represents a decline of about 1.8% per year. Companies that continuously reduce their dividends are generally not the first choice for dividend investors. A bright spot could be the expected EPS growth, which might mitigate the fluctuations in the dividend. However, it should be noted that earnings have declined by about 7.2% annually over the past three years. As long as this trend is not reversed, future dividend growth is unlikely. The coming year, however, looks positive, and we would wait to see if this becomes the norm before becoming too optimistic. Overall, despite the announcement of a dividend this year, we do not consider Gen Digital to be an especially attractive dividend stock. Past payments have been unstable, and although the short-term dividend might appear reliable, we would consider other options for a secure income investment. Companies with a stable dividend policy tend to attract more interest from investors than those with an inconsistent approach. Besides dividend payouts, however, investors should consider numerous other factors when analyzing a company. For instance, we have discovered five warning signs for Gen Digital, one of which cannot be ignored. Is Gen Digital not quite the opportunity you are looking for? Why not take a look at our selection of the best dividend stocks.