PS Business Parks, Inc. (NYSE:PSB) stock is about to trade ex-dividend in 3 days time. This means that investors who purchase shares on or after the 11th of September will not receive the dividend, which will be paid on the 27th of September.
PS Business Parks's upcoming dividend is US$1.05 a share, following on from the last 12 months, when the company distributed a total of US$4.20 per share to shareholders. Calculating the last year's worth of payments shows that PS Business Parks has a trailing yield of 2.3% on the current share price of $180.66. 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! As a result, readers should always check whether PS Business Parks has been able to grow its dividends, or if the dividend might be cut.
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. PS Business Parks paid out more than half (71%) of its earnings last year, which is a regular payout ratio for most companies. While PS Business Parks 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. Over the last year it paid out 58% of its free cash flow as dividends, within the usual range for most companies.
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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. For this reason, we're glad to see PS Business Parks's earnings per share have risen 18% per annum over the last five years. PS Business Parks is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. Given the quick rate of earnings per share growth and current level of payout, there may be a chance of further dividend increases in the future.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. PS Business Parks has delivered an average of 9.1% per year annual increase in its dividend, based on the past 10 years of dividend payments. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
From a dividend perspective, should investors buy or avoid PS Business Parks? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see PS Business Parks's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 71% and 58% respectively. All things considered, we are not particularly enthused about PS Business Parks from a dividend perspective.
Wondering what the future holds for PS Business Parks? 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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