It looks like Premier Investments Limited (ASX:PMV) is about to go ex-dividend in the next 4 days. If you purchase the stock on or after the 30th of July, you won't be eligible to receive this dividend, when it is paid on the 30th of September.
Premier Investments's next dividend payment will be AU$0.34 per share. Last year, in total, the company distributed AU$0.71 to shareholders. Calculating the last year's worth of payments shows that Premier Investments has a trailing yield of 4.0% on the current share price of A$17.57. If you buy this business for its dividend, you should have an idea of whether Premier Investments's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
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. Last year, Premier Investments paid out 96% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business. 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. Thankfully its dividend payments took up just 46% of the free cash flow it generated, which is a comfortable payout ratio.
It's good to see that while Premier Investments's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
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. This is why it's a relief to see Premier Investments earnings per share are up 9.6% per annum over the last five years.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Premier Investments has delivered an average of 7.3% per year annual increase in its dividend, based on the past 10 years of dividend payments. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.
Is Premier Investments worth buying for its dividend? Premier Investments has been steadily growing its earnings per share, and it is paying out just 46% of its cash flow but an uncomfortably high 96% of its income. To summarise, Premier Investments looks okay on this analysis, although it doesn't appear a stand-out opportunity.
However if you're still interested in Premier Investments as a potential investment, you should definitely consider some of the risks involved with Premier Investments. Every company has risks, and we've spotted 2 warning signs for Premier Investments you should know about.
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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