Benzinga | Dec 22, 2020 10:22AM EST

Is Paychex's Dividend Safe?

In today's dividend safety check, Benzinga Insights evaluates Paychex (NASDAQ:PAYX) to check if its 2.94% dividend yield is safe or not, as the company is releasing its earnings on December 23, 2020 before the bell. We will assess this based on its earnings-to-dividend payout ratio and history of dividend cuts.

Paychex's Payout Ratio

Payout ratio is equal to dividends per share divided by earnings per share and is used as an important measure of dividend affordability. Paychex's relatively high payout ratio of 98.41% may be an area of concern for investors. Typically, a high payout ratio near (or above) 100% is an indication that a company's earnings are unable to cover its dividend and that it may need to borrow money or cut the dividend to stay solvent.

Has Paychex Cut Its Dividend in the Recent Past?

Typically, it is difficult to predict future behavior based on past activities, but companies with recent histories of dividend cuts could cut them again. If a company does not have a history of consistent or rising dividends, it has less incentive to appease income investors than companies that do. In the last few years, Paychex has not cut its dividend. Although there is no guarantee of dividend safety, this does imply the company's management is reluctant to cut it.

How Safe Is Paychex's Dividend Overall?

Paychex has failed one of our dividend safety tests. It has a high payout ratio and no recent case(s) of dividend cuts. With all of this in mind, it is quite unlikely that Paychex will cut its dividend next quarter.

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