Cognizant Technology Solutions Corporation's (NASDAQ:CTSH) dividend will be increasing from last year's payment of the same period to $0.31 on 26th of February. Despite this raise, the dividend yield of 1.4% is only a modest boost to shareholder returns.

Check out our latest analysis for Cognizant Technology Solutions

Cognizant Technology Solutions' Future Dividend Projections Appear Well Covered By Earnings

It would be nice for the yield to be higher, but we should also check if higher levels of dividend payment would be sustainable. Before making this announcement, Cognizant Technology Solutions was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.

Over the next year, EPS is forecast to expand by 31.1%. Assuming the dividend continues along recent trends, we think the payout ratio could be 23% by next year, which is in a pretty sustainable range.

Cognizant Technology Solutions Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 8 years of history we want to see a few more years of history before making any solid conclusions. The dividend has gone from an annual total of $0.60 in 2017 to the most recent total annual payment of $1.24. This means that it has been growing its distributions at 9.5% per annum over that time. Cognizant Technology Solutions has a nice track record of dividend growth but we would wait until we see a longer track record before getting too confident.

The Dividend Has Growth Potential

The company's investors will be pleased to have been receiving dividend income for some time. Cognizant Technology Solutions has seen EPS rising for the last five years, at 6.5% per annum. Cognizant Technology Solutions definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

In Summary

In summary, it's great to see that the company can raise the dividend and keep it in a sustainable range. While the payout ratios are a good sign, we are less enthusiastic about the company's dividend record. The dividend looks okay, but there have been some issues in the past, so we would be a little bit cautious.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Companies that are growing earnings tend to be the best dividend stocks over the long term. See what the 24 analysts we track are forecasting for Cognizant Technology Solutions for free with public analyst estimates for the company. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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