Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Preformed Line Products Company (NASDAQ:PLPC) is about to trade ex-dividend in the next 3 days. Ex-dividend means that investors that purchase the stock on or after the 31st of December will not receive this dividend, which will be paid on the 20th of January.
Preformed Line Products's next dividend payment will be US$0.20 per share, on the back of last year when the company paid a total of US$0.80 to shareholders. Last year's total dividend payments show that Preformed Line Products has a trailing yield of 1.2% on the current share price of $65.74. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Preformed Line Products has a low and conservative payout ratio of just 12% of its income after tax. Yet cash flow is typically more important than profit for assessing dividend sustainability, so we should always check if the company generated enough cash to afford its dividend. Over the last year it paid out 50% 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?
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. That's why it's comforting to see Preformed Line Products's earnings have been skyrocketing, up 22% per annum for the past five years.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. It looks like the Preformed Line Products dividends are largely the same as they were 10 years ago.
The Bottom Line
Is Preformed Line Products worth buying for its dividend? From a dividend perspective, we're encouraged to see that earnings per share have been growing, the company is paying out less than half of its earnings, and a bit over half its free cash flow. Preformed Line Products looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
On that note, you'll want to research what risks Preformed Line Products is facing. Every company has risks, and we've spotted 1 warning sign for Preformed Line Products you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top 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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