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Don't Buy Fidelity National Information Services, Inc. (NYSE:FIS) For Its Next Dividend Without Doing These Checks

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Fidelity National Information Services, Inc. (NYSE:FIS) stock is about to trade ex-dividend in three days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled to receive a dividend. The ex-dividend date is important as the process of settlement involves two full business days. So if you miss that date, you would not show up on the company's books on the record date. Thus, you can purchase Fidelity National Information Services' shares before the 10th of June in order to receive the dividend, which the company will pay on the 25th of June.

The company's next dividend payment will be US$0.39 per share. Last year, in total, the company distributed US$1.56 to shareholders. Last year's total dividend payments show that Fidelity National Information Services has a trailing yield of 1.1% on the current share price of $146.86. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Fidelity National Information Services has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Fidelity National Information Services

If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Fidelity National Information Services reported a loss after tax last year, which means it's paying a dividend despite being unprofitable. While this might be a one-off event, this is unlikely to be sustainable in the long term. Given that the company reported a loss last year, we now need to see if it generated enough free cash flow to fund the dividend. If cash earnings don't cover the dividend, the company would have to pay dividends out of cash in the bank, or by borrowing money, neither of which is long-term sustainable. Luckily it paid out just 24% of its free cash flow last year.

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

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Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. Fidelity National Information Services was unprofitable last year and, unfortunately, the general trend suggests its earnings have been in decline over the last five years, making us wonder if the dividend is sustainable at all.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Fidelity National Information Services has lifted its dividend by approximately 23% a year on average.

Get our latest analysis on Fidelity National Information Services's balance sheet health here.

The Bottom Line

From a dividend perspective, should investors buy or avoid Fidelity National Information Services? It's hard to get used to Fidelity National Information Services paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. Bottom line: Fidelity National Information Services has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.

Ever wonder what the future holds for Fidelity National Information Services? See what the 30 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.

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. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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