Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Propel Funeral Partners Limited (ASX:PFP) is about to trade ex-dividend in the next 4 days. You can purchase shares before the 3rd of September in order to receive the dividend, which the company will pay on the 4th of October.
Propel Funeral Partners's upcoming dividend is AU$0.058 a share, following on from the last 12 months, when the company distributed a total of AU$0.12 per share to shareholders. Last year's total dividend payments show that Propel Funeral Partners has a trailing yield of 3.8% on the current share price of A$3.08. 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! So we need to check whether the dividend payments are covered, and if earnings are growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Propel Funeral Partners paid out more than half (51%) of its earnings last year, which is a regular payout ratio for most companies. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Over the last year, it paid out dividends equivalent to 270% of what it generated in free cash flow, a disturbingly high percentage. Unless there were something in the business we're not grasping, this could signal a risk that the dividend may have to be cut in the future.
Propel Funeral Partners paid out less in dividends than it reported in profits, but unfortunately it didn't generate enough cash to cover the dividend. Were this to happen repeatedly, this would be a risk to Propel Funeral Partners's ability to maintain its dividend.
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. Earnings have been growing quickly, but we're concerned dividend payments consumed most of the company's cash flow over the past year.
Given that Propel Funeral Partners has only been paying a dividend for a year, there's not much of a past history to draw insight from.
Has Propel Funeral Partners got what it takes to maintain its dividend payments? It's good to see that earnings per share are growing and that the company's payout ratio is within a normal range for most businesses. However we're somewhat concerned that it paid out 270% of its cashflow, which is uncomfortably high. Overall, it's hard to get excited about Propel Funeral Partners from a dividend perspective.
Ever wonder what the future holds for Propel Funeral Partners? See what the two analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.