Is Xerox’s 7% Yield as Shaky as Its Stock?

By Marc Lichtenfeld, Wealthy Retirement, 2024-06-19

I'm not a fan of Xerox (Nasdaq: XRX). In fact, I have so little confidence in the stock that I recently recommended a bearish position on it in my newly rebranded VIP Trading Service, Trigger Event Trader.

Revenue is at its lowest level in at least a decade. Sales dropped 12% in the first quarter. And the company hasn't been profitable since 2020.

But the stock does pay a juicy $0.25 per share quarterly dividend, which equates to a 7.2% yield.

Can Xerox continue to offer such a high payout to shareholders?

To its credit, despite plummeting sales and profitability, Xerox is cash flow positive.

In 2023, it generated $649 million in free cash flow and paid shareholders $165 million in dividends for a very low payout ratio of 25%. This year, free cash flow is forecast to dip to $613 million, and the payout ratio is projected to inch up above 28%.

Chart: Xerox's Dividend Is Extremely Affordable

However, Xerox cut its dividend slightly in 2017. That shows that management can and will slash the dividend if necessary.

Given that the company's cash flow easily covers its dividend, I don't believe another cut is imminent. But the lower projected free cash flow in 2024 and the past dividend cut mean investors shouldn't feel overconfident.

Dividend Safety Rating: C

Dividend Grade Guide

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