Readers hoping to buy Paramount Group, Inc. (NYSE:PGRE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. This means that investors who purchase shares on or after the 27th of September will not receive the dividend, which will be paid on the 15th of October.
Paramount Group's upcoming dividend is US$0.1 a share, following on from the last 12 months, when the company distributed a total of US$0.4 per share to shareholders. Based on the last year's worth of payments, Paramount Group has a trailing yield of 3.1% on the current stock price of $13.09. 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.
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. That's why it's good to see Paramount Group paying out a modest 47% of its earnings. While Paramount Group seems to be paying out a very high percentage of its income, REITs have different dividend payment behaviour and so, while we don't think this is great, we also don't think it is unusual. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. Dividends consumed 67% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
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?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. With that in mind, we're encouraged by the steady growth at Paramount Group, with earnings per share up 3.0% on average over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company's prospects for future growth.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. Paramount Group has delivered 1.0% dividend growth per year on average over the past five years.
The Bottom Line
Is Paramount Group an attractive dividend stock, or better left on the shelf? Earnings per share have been growing at a steady rate, and Paramount Group paid out less than half its profits and more than half its free cash flow as dividends over the last year. To summarise, Paramount Group looks okay on this analysis, although it doesn't appear a stand-out opportunity.
Ever wonder what the future holds for Paramount Group? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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 email@example.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. Thank you for reading.