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I’m not a fan of Xerox (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%.

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

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