Don't Race Out To Buy Power Corporation of Canada (TSE:POW) Just Because It's Going Ex-Dividend
Power Corporation of Canada (TSE:POW) stock is about to trade ex-dividend in 3 days. This means that investors who purchase shares on or after the 29th of September will not receive the dividend, which will be paid on the 30th of October.
Power Corporation of Canada's next dividend payment will be CA$0.45 per share, on the back of last year when the company paid a total of CA$1.79 to shareholders. Calculating the last year's worth of payments shows that Power Corporation of Canada has a trailing yield of 6.7% on the current share price of CA$26.65. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Power Corporation of Canada
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Power Corporation of Canada paid out 62% of its earnings to investors last year, a normal payout level for most businesses.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies that aren't growing their earnings can still be valuable, but it is even more important to assess the sustainability of the dividend if it looks like the company will struggle to grow. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, we're not enthused to see that Power Corporation of Canada's earnings per share have remained effectively flat over the past five years. Better than seeing them fall off a cliff, for sure, but the best dividend stocks grow their earnings meaningfully over the long run.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Power Corporation of Canada has delivered an average of 4.4% per year annual increase in its dividend, based on the past 10 years of dividend payments.
Final Takeaway
Is Power Corporation of Canada worth buying for its dividend? Power Corporation of Canada's earnings per share have been essentially flat, and the company is paying out more than half of its earnings as dividends to shareholders. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.
With that in mind though, if the poor dividend characteristics of Power Corporation of Canada don't faze you, it's worth being mindful of the risks involved with this business. For instance, we've identified 2 warning signs for Power Corporation of Canada (1 is concerning) you should be aware of.
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.
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. 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.
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