Jack Henry & Associates, Inc. (NASDAQ:JKHY) will increase its dividend from last year's comparable payment on the 25th of March to $0.61. This will take the annual payment to 1.5% of the stock price, which is above what most companies in the industry pay.

Jack Henry & Associates' Payment Could Potentially Have Solid Earnings Coverage

A big dividend yield for a few years doesn't mean much if it can't be sustained. Before making this announcement, Jack Henry & Associates was easily earning enough to cover the dividend. As a result, a large proportion of what it earned was being reinvested back into the business.

The next year is set to see EPS grow by 19.6%. If the dividend continues on this path, the payout ratio could be 30% by next year, which we think can be pretty sustainable going forward.

Jack Henry & Associates Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from an annual total of $1.00 in 2016 to the most recent total annual payment of $2.44. This works out to be a compound annual growth rate (CAGR) of approximately 9.3% a year over that time. The growth of the dividend has been pretty reliable, so we think this can offer investors some nice additional income in their portfolio.

The Dividend Looks Likely To Grow

The company's investors will be pleased to have been receiving dividend income for some time. Jack Henry & Associates has impressed us by growing EPS at 13% per year over the past five years. Jack Henry & Associates definitely has the potential to grow its dividend in the future with earnings on an uptrend and a low payout ratio.

We Really Like Jack Henry & Associates' Dividend

In summary, it is always positive to see the dividend being increased, and we are particularly pleased with its overall sustainability. Distributions are quite easily covered by earnings, which are also being converted to cash flows. Taking this all into consideration, this looks like it could be a good dividend opportunity.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.