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Pizza Pizza Royalty's (TSE:PZA) Shareholders Will Receive A Bigger Dividend Than Last Year

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  • PZRIF

The board of Pizza Pizza Royalty Corp. (TSE:PZA) has announced that it will be increasing its dividend on the 15th of September to CA$0.06. This takes the dividend yield from 5.8% to 5.9%, which shareholders will be pleased with.

See our latest analysis for Pizza Pizza Royalty

Pizza Pizza Royalty's Dividend Is Well Covered By Earnings

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, Pizza Pizza Royalty was paying out 89% of earnings and more than 75% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

Looking forward, could fall by 3.6% if the company can't turn things around from the last few years. Assuming the dividend continues along recent trends, we think the payout ratio could reach 93%, which is definitely on the higher side.

historic-dividend
historic-dividend

Pizza Pizza Royalty's Track Record Isn't Great

The dividend hasn't seen any major cuts in the last 10 years, but it has slowly been decreasing. The first annual payment during the last 10 years was CA$0.93 in 2011, and the most recent fiscal year payment was CA$0.65. The dividend has shrunk at around 3.6% a year during that period. A company that decreases its dividend over time generally isn't what we are looking for.

Pizza Pizza Royalty May Find It Hard To Grow The Dividend

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. In the last five years, Pizza Pizza Royalty's earnings per share has shrunk at approximately 3.6% per annum. A modest decline in earnings isn't great, and it makes it quite unlikely that the dividend will grow in the future unless that trend can be reversed.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Pizza Pizza Royalty's payments are rock solid. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We would probably look elsewhere for an income investment.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 1 warning sign for Pizza Pizza Royalty that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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