Prism Johnson Limited (NSE:PRSMJOHNSN) Looks Like A Good Stock, And It's Going Ex-Dividend Soon
Prism Johnson Limited (NSE:PRSMJOHNSN) is about to trade ex-dividend in the next 3 days. If you purchase the stock on or after the 6th of August, you won't be eligible to receive this dividend, when it is paid on the 29th of August.
The upcoming dividend for Prism Johnson is ₹1.00 per share, increased from last year's total dividends per share of ₹0.50. We love seeing companies pay a dividend, but it's also important to be sure that laying the golden eggs isn't going to kill our golden goose! That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
Check out our latest analysis for Prism Johnson
Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Prism Johnson has a low and conservative payout ratio of just 24% 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. It paid out 6.9% of its free cash flow as dividends last year, which is conservatively low.
It's positive to see that Prism Johnson's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
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. If earnings fall far enough, the company could be forced to cut its dividend. That's why it's comforting to see Prism Johnson's earnings have been skyrocketing, up 63% per annum for the past five years. Prism Johnson looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Prism Johnson's dividend payments per share have declined at 4.0% per year on average over the past 10 years, which is uninspiring. Prism Johnson is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
The Bottom Line
Is Prism Johnson worth buying for its dividend? It's great that Prism Johnson is growing earnings per share while simultaneously paying out a low percentage of both its earnings and cash flow. It's disappointing to see the dividend has been cut at least once in the past, but as things stand now, the low payout ratio suggests a conservative approach to dividends, which we like. Prism Johnson looks solid on this analysis overall, and we'd definitely consider investigating it more closely.
Wondering what the future holds for Prism Johnson? See what the three analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
