Pacific Current Group Limited (ASX:PAC) has announced that on 11th of October, it will be paying a dividend ofA$0.23, which a reduction from last year's comparable dividend. The dividend yield will be in the average range for the industry at 4.4%.
Pacific Current Group's Earnings Easily Cover The Distributions
We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Even while not generating a profit, Pacific Current Group is paying out most of its free cash flows as a dividend. Generally paying a dividend without making profits isn't a great idea and we are also worried that there is limited reinvestment into the business.
According to analysts, EPS should be several times higher next year. If the dividend extends its recent trend, estimates say the dividend could reach 23%, which we would be comfortable to see continuing.
Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the dividend has gone from A$0.34 total annually to A$0.38. This works out to be a compound annual growth rate (CAGR) of approximately 1.1% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.
The Dividend Has Limited Growth Potential
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. Pacific Current Group's earnings per share has shrunk at 33% a year over the past five years. Dividend payments are likely to come under some pressure unless EPS can pull out of the nosedive it is in. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.
The Dividend Could Prove To Be Unreliable
In summary, dividends being cut isn't ideal, however it can bring the payment into a more sustainable range. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've identified 2 warning signs for Pacific Current Group (1 shouldn't be ignored!) that you should be aware of before investing. Is Pacific Current Group not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.
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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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