Parkland Corporation (TSE:PKI) stock is about to trade ex-dividend in four days. You will need to purchase shares before the 21st of September to receive the dividend, which will be paid on the 15th of October.
Parkland's upcoming dividend is CA$0.10 a share, following on from the last 12 months, when the company distributed a total of CA$1.21 per share to shareholders. Last year's total dividend payments show that Parkland has a trailing yield of 3.6% on the current share price of CA$33.6. If you buy this business for its dividend, you should have an idea of whether Parkland's dividend is reliable and sustainable. As a result, readers should always check whether Parkland has been able to grow its dividends, or if the dividend might be cut.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Parkland distributed an unsustainably high 116% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. 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. Fortunately, it paid out only 32% of its free cash flow in the past year.
It's good to see that while Parkland's dividends were not covered by profits, at least they are affordable from a cash perspective. Still, if the company repeatedly paid a dividend greater than its profits, we'd be concerned. Extraordinarily few companies are capable of persistently paying a dividend that is greater than their profits.
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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. This is why it's a relief to see Parkland earnings per share are up 9.4% per annum over the last five years.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Parkland's dividend payments are effectively flat on where they were 10 years ago.
Is Parkland worth buying for its dividend? Earnings per share have grown modestly, and last year Parkland paid out a low percentage of its cash flow. However, its dividend payments were not well covered by profits. Overall, it's hard to get excited about Parkland from a dividend perspective.
If you want to look further into Parkland, it's worth knowing the risks this business faces. For example, we've found 5 warning signs for Parkland (1 is significant!) that deserve your attention before investing in the shares.
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.
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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