Readers hoping to buy Pangaea Logistics Solutions, Ltd. (NASDAQ:PANL) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Ex-dividend means that investors that purchase the stock on or after the 23rd of August will not receive this dividend, which will be paid on the 3rd of September.
Pangaea Logistics Solutions's next dividend payment will be US$0.035 per share. Last year, in total, the company distributed US$0.14 to shareholders. Last year's total dividend payments show that Pangaea Logistics Solutions has a trailing yield of 4.5% on the current share price of $3.12. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. We need to see whether the dividend is covered by earnings and if it's growing.
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. Pangaea Logistics Solutions has a low and conservative payout ratio of just 9.7% of its income after tax. A useful secondary check can be to evaluate whether Pangaea Logistics Solutions generated enough free cash flow to afford its dividend.
Pangaea Logistics Solutions paid a dividend despite reporting negative free cash flow over the last twelve months. This may be due to heavy investment in the business, but this is still suboptimal from a dividend sustainability perspective.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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. If earnings fall far enough, the company could be forced to cut its dividend. It's encouraging to see Pangaea Logistics Solutions has grown its earnings rapidly, up 65% a year for the past five years.
This is Pangaea Logistics Solutions's first year of paying a dividend, so it doesn't have much of a history yet to compare to.
The Bottom Line
Has Pangaea Logistics Solutions got what it takes to maintain its dividend payments? We like that Pangaea Logistics Solutions has been successfully growing its earnings per share at a nice rate and reinvesting most of its profits in the business. However, we note the high cashflow payout ratio with some concern. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
Keen to explore more data on Pangaea Logistics Solutions's financial performance? Check out our visualisation of its historical revenue and earnings growth.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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