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Don't Race Out To Buy PCTEL, Inc. (NASDAQ:PCTI) Just Because It's Going Ex-Dividend

Simply Wall St
·3 min read

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see PCTEL, Inc. (NASDAQ:PCTI) is about to trade ex-dividend in the next 3 days. You will need to purchase shares before the 6th of February to receive the dividend, which will be paid on the 18th of February.

PCTEL's upcoming dividend is US$0.055 a share, following on from the last 12 months, when the company distributed a total of US$0.22 per share to shareholders. Calculating the last year's worth of payments shows that PCTEL has a trailing yield of 2.7% on the current share price of $8.05. If you buy this business for its dividend, you should have an idea of whether PCTEL's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View our latest analysis for PCTEL

Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. PCTEL lost money last year, so the fact that it's paying a dividend is certainly disconcerting. There might be a good reason for this, but we'd want to look into it further before getting comfortable. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If PCTEL didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Dividends consumed 73% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

NasdaqGS:PCTI Historical Dividend Yield, February 2nd 2020
NasdaqGS:PCTI Historical Dividend Yield, February 2nd 2020

Have Earnings And Dividends Been Growing?

When earnings decline, dividend companies become much harder to analyse and own safely. If earnings fall far enough, the company could be forced to cut its dividend. PCTEL reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last eight years, PCTEL has lifted its dividend by approximately 7.9% a year on average.

Get our latest analysis on PCTEL's balance sheet health here.

To Sum It Up

From a dividend perspective, should investors buy or avoid PCTEL? It's hard to get used to PCTEL paying a dividend despite reporting a loss over the past year. At least the dividend was covered by free cash flow, however. It's not that we think PCTEL is a bad company, but these characteristics don't generally lead to outstanding dividend performance.

Wondering what the future holds for PCTEL? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow

A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.