Readers hoping to buy People Infrastructure Ltd (ASX:PPE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. If you purchase the stock on or after the 5th of September, you won't be eligible to receive this dividend, when it is paid on the 2nd of October.
People Infrastructure's next dividend payment will be AU$0.045 per share. Last year, in total, the company distributed AU$0.09 to shareholders. Calculating the last year's worth of payments shows that People Infrastructure has a trailing yield of 2.6% on the current share price of A$3.45. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. People Infrastructure is paying out an acceptable 57% of its profit, a common payout level among most companies. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Fortunately, it paid out only 46% of its free cash flow in the past year.
It's positive to see that People Infrastructure's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. For that reason, it's encouraging to see People Infrastructure's earnings over the past year have risen 0.37557. While we'd be remiss not to point out that a year is a very short time in dividend investing, it's an encouraging sign so far. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. Earnings per share have been growing quickly and in combination with some reinvestment and a middling payout ratio, the stock may have decent dividend prospects going forwards.
One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.
People Infrastructure also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. It's hard to grow dividends per share when a company keeps creating new shares.
Unfortunately People Infrastructure has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
Should investors buy People Infrastructure for the upcoming dividend? We like People Infrastructure's growing earnings per share and the fact that - while its payout ratio is around average - it paid out a lower percentage of its cash flow. There's a lot to like about People Infrastructure, and we would prioritise taking a closer look at it.
Wondering what the future holds for People Infrastructure? See what the three 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.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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. Thank you for reading.