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Is It Smart To Buy Jack Henry & Associates, Inc. (NASDAQ:JKHY) Before It Goes Ex-Dividend?

Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Jack Henry & Associates, Inc. (NASDAQ:JKHY) is about to go ex-dividend in just 4 days. Investors can purchase shares before the 28th of February in order to be eligible for this dividend, which will be paid on the 19th of March.

Jack Henry & Associates's next dividend payment will be US$0.43 per share, and in the last 12 months, the company paid a total of US$1.72 per share. Last year's total dividend payments show that Jack Henry & Associates has a trailing yield of 1.0% on the current share price of $171.01. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for Jack Henry & Associates

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Jack Henry & Associates paying out a modest 44% of its earnings. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 44% of its free cash flow in the past year.

It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:JKHY Historical Dividend Yield, February 23rd 2020
NasdaqGS:JKHY Historical Dividend Yield, February 23rd 2020

Have Earnings And Dividends Been Growing?

Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see Jack Henry & Associates's earnings per share have risen 11% per annum over the last five years. The company has managed to grow earnings at a rapid rate, while reinvesting most of the profits within the business. This will make it easier to fund future growth efforts and we think this is an attractive combination - plus the dividend can always be increased later.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Jack Henry & Associates has delivered an average of 18% per year annual increase in its dividend, based on the past ten years of dividend payments. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

Final Takeaway

Is Jack Henry & Associates an attractive dividend stock, or better left on the shelf? Jack Henry & Associates has been growing earnings at a rapid rate, and has a conservatively low payout ratio, implying that it is reinvesting heavily in its business; a sterling combination. It's a promising combination that should mark this company worthy of closer attention.

Ever wonder what the future holds for Jack Henry & Associates? See what the 12 analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.