Here's Why We're Wary Of Buying PZ Cussons' (LON:PZC) For Its Upcoming Dividend
Readers hoping to buy PZ Cussons Plc (LON:PZC) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. This means that investors who purchase PZ Cussons' shares on or after the 21st of October will not receive the dividend, which will be paid on the 30th of November.
The company's next dividend payment will be UK£0.034 per share, on the back of last year when the company paid a total of UK£0.061 to shareholders. Based on the last year's worth of payments, PZ Cussons has a trailing yield of 2.8% on the current stock price of £2.19. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to investigate whether PZ Cussons can afford its dividend, and if the dividend could grow.
Check out our latest analysis for PZ Cussons
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. PZ Cussons paid out more than half (73%) of its earnings last year, which is a regular payout ratio for 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. Over the last year it paid out 58% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that PZ Cussons'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.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. PZ Cussons's earnings per share have fallen at approximately 12% a year over the previous five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. PZ Cussons has seen its dividend decline 0.8% per annum on average over the past 10 years, which is not great to see.
Final Takeaway
From a dividend perspective, should investors buy or avoid PZ Cussons? It's never good to see earnings per share shrinking, but at least the dividend payout ratios appear reasonable. We're aware though that if earnings continue to decline, the dividend could be at risk. It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
With that being said, if you're still considering PZ Cussons as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 1 warning sign for PZ Cussons that we recommend you consider before investing in the business.
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. 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.
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