The board of Premier, Inc. (NASDAQ:PINC) has announced that the dividend on 15th of September will be increased to $0.21, which will be 5.0% higher than last year's payment of $0.20 which covered the same period. This will take the annual payment to 2.1% of the stock price, which is above what most companies in the industry pay.
Premier's Dividend Is Well Covered By Earnings
If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Premier was easily earning enough to cover the dividend. This means that most of what the business earns is being used to help it grow.
EPS is set to fall by 6.6% over the next 12 months. If the dividend continues along recent trends, we estimate the payout ratio could be 38%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.
Premier Doesn't Have A Long Payment History
The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2020, the dividend has gone from $0.76 total annually to $0.80. This works out to be a compound annual growth rate (CAGR) of approximately 2.6% a year over that time. Modest dividend growth is good to see, especially with the payments being relatively stable. However, the payment history is relatively short and we wouldn't want to rely on this dividend too much.
The Dividend Has Limited Growth Potential
Some investors will be chomping at the bit to buy some of the company's stock based on its dividend history. However, initial appearances might be deceiving. Premier's EPS has fallen by approximately 25% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.
Our Thoughts On Premier's Dividend
In summary, while it's always good to see the dividend being raised, we don't think Premier's payments are rock solid. The payments haven't been particularly stable and we don't see huge growth potential, but with the dividend well covered by cash flows it could prove to be reliable over the short term. We would probably look elsewhere for an income investment.
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. Just as an example, we've come across 2 warning signs for Premier you should be aware of, and 1 of them can't be ignored. Is Premier 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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