High Dividend 50: Xerox Holdings – Sure Dividend

Up to date on June 18th, 2024 by Nathan Parsh

Excessive-yield shares pay out dividends which can be considerably greater than market common dividends. For instance, the S&P 500’s present yield is only one.3%.

Excessive-yield shares could be very useful to shore up earnings after retirement. A $120,000 funding in shares with a median dividend yield of 5% creates a median of $500 a month in dividends.

Xerox Holdings Company (XRX) inventory has a excessive dividend yield of barely greater than 7% at present costs. It is without doubt one of the high-yield shares in our database.

Xerox is a part of our ‘Excessive Dividend 50’ sequence, the place we cowl the 50 highest yielding shares within the Positive Evaluation Analysis Database.

You possibly can obtain your free full checklist of all excessive dividend shares with 5%+ yields (together with vital monetary metrics resembling dividend yield and payout ratio) by clicking on the hyperlink under:

On this article, we are going to analyze the prospects of Xerox Holdings inventory.

Enterprise Overview

Xerox is a expertise firm that designs, develops, and sells a variety of enterprise options in the USA and all over the world.

Its choices embrace colour and multi-function printers, digital printing presses, digital providers for workflow automation, content material administration options, and extra.

From a comparatively hardware-focused firm, Xerox has developed right into a extra diversified enterprise over time, including software program and providers segments by way of natural enlargement and acquisitions.

Consequently, non-equipment income contributes most of Xerox’s gross sales as we speak:

Supply: Investor Presentation

In the latest quarter, Xerox reported revenues of $1.5 billion, which was a 12.4% lower year-over-year and decrease by 13.2% in fixed foreign money. Overseas trade translations helped the top-line by 80 foundation factors on a reported foundation.

Round one-fifth of these revenues are generated by way of tools gross sales, whereas the rest is generated by way of what Xerox calls post-sale alternatives, resembling servicing.

These revenues are oftentimes recurring, which makes this income stream considerably much less risky than tools.

As a result of increased prices attributable to inflation, earnings-per-share declined from $0.49 in Q1 2023 to simply $0.06 in Q1 2024. Consequently, working margin contracted 470 foundation factors to 2.2%

Working money movement declined $157 million, to a lack of $79 million. Money flows additionally suffered from weaker margins as a consequence of price pressures that weren’t totally handed on to clients but, though we consider that can occur within the close to future.

Progress Prospects

Xerox will not be in a progress business, however we nonetheless consider that the corporate will ship earnings-per-share progress over the approaching 5 years.

We don’t consider that gross sales will develop dramatically going ahead, because the business will not be rising meaningfully. However with inflationary pressures finally easing and with Xerox elevating its costs for purchasers over time, its margins ought to broaden.

As a result of below-average profitability we see as we speak, margin enlargement may have a significant affect on profitability progress going ahead.

And because of the truth that Xerox doesn’t want to speculate closely in new manufacturing capability, the corporate can return most of its money flows to the corporate’s homeowners. That is performed by way of a mix of dividends and share repurchases.

Buybacks have lowered the corporate’s share rely dramatically during the last decade, as Xerox’s excellent shares dropped from 306 million in 2012 to simply 123 million in 2023.

This greater than doubled every share’s portion of the corporate’s internet earnings.

Supply: Investor Presentation

As we see above, Xerox has a wholesome steadiness sheet with restricted internet core debt. Shareholder returns ought to thus stay significant going ahead, we consider.

Between some margin normalization and a significant tempo of buybacks, Xerox may ship earnings-per-share progress of as much as 5% a 12 months going ahead, we consider, which is why we count on that earnings-per-share will climb to $2.49 by 2029.

Aggressive Benefits & Recession Efficiency

As a result of the workplace tech phase will not be rising at a excessive charge, it’s not very enticing for brand new market entrants. In flip, the established gamers together with Xerox management the market.

Xerox advantages from a globally diversified buyer base and from its concentrate on doc administration methods. On high of that, its wholesome steadiness sheet could be seen as a aggressive benefit.

That being mentioned, the corporate has not capitalized on these benefits to a big diploma, as its margins and return on capital aren’t particularly enticing — the working margin is barely within the low single digits, for instance.

Xerox has additionally struggled throughout recessionary durations.

The corporate’s earnings-per-share all through the Nice Recession:

2007 earnings-per-share of $1.19
2008 earnings-per-share of $0.26 (78% lower)
2009 earnings-per-share of $0.55 (112% enhance)

Xerox’s earnings-per-share suffered a big decline in 2008 earlier than staging a reasonable return to progress.

Earnings-per-share fell 60% in 2020 in the course of the worst of the Covid-19 pandemic and the corporate has but to determine a brand new excessive.

Dividend Evaluation

Xerox at present trades with a dividend yield of seven.3% based mostly on a share worth of $13.66 and an annualized dividend of $1.00. The dividend has been secure since 2017 as there has not been any dividend progress in that time-frame.

In 2016, Xerox had decreased its payout by 20%, exhibiting the corporate is prepared to finish its dividend monitor report when essential.

Based mostly on this 12 months’s anticipated earnings of $1.95 for 2024, the dividend seems to be sustainable, because the payout ratio is projected to be 51%.

That mentioned, we do consider that earnings will develop within the coming years. If that had been to happen, then the dividend payout ratio may drop to round 40% by 2029 if the dividend is maintained on the present stage of $0.25 per quarter.

In fact, there isn’t any assure that the dividend might be maintained, particularly if earnings progress doesn’t materialize. We do consider that the corporate’s bottom-line will enhance by a mid-single-digit share charge over the subsequent 5 years.

Conservative traders might discover the corporate’s high quality missing, however the dividend is probably going protected from being lower given future earnings projections.

Ultimate Ideas

Xerox will not be a really high-quality firm. Its monitor report will not be robust, as the corporate’s earnings-per-share haven’t established a brand new excessive since 2019. The enterprise progress charge during the last decade has been removed from compelling.

Xerox’s money era has been strong up to now, which allowed for vital dividend funds and for ongoing buybacks. At the moment, the yield is at a sexy stage of greater than 7%. Even higher, the dividend seems to be safer as we speak than it has in a really very long time.

As well as, the valuation has develop into extra affordable at barely greater than 7 instances anticipated earnings-per-share, so traders should not overpaying for the inventory in our opinion.

For traders with a stronger urge for food for danger, that yield might be engaging, making Xerox a purchase at present ranges.

In case you are concerned about discovering high-quality dividend progress shares and/or different high-yield securities and earnings securities, the next Positive Dividend sources might be helpful:

Excessive-Yield Particular person Safety Analysis

Different Positive Dividend Assets