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Two Days Left To Buy Park Lawn Corporation (TSE:PLC) Before The Ex-Dividend Date

Simply Wall St
·4 min read

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Park Lawn Corporation (TSE:PLC) is about to trade ex-dividend in the next 2 days. Ex-dividend means that investors that purchase the stock on or after the 30th of December will not receive this dividend, which will be paid on the 15th of January.

Park Lawn's next dividend payment will be CA$0.038 per share, on the back of last year when the company paid a total of CA$0.46 to shareholders. Calculating the last year's worth of payments shows that Park Lawn has a trailing yield of 1.6% on the current share price of CA$28.61. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Park Lawn has been able to grow its dividends, or if the dividend might be cut.

View our latest analysis for Park Lawn

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. Last year Park Lawn paid out 102% of its profits as dividends to shareholders, suggesting the dividend is not well covered by earnings. A useful secondary check can be to evaluate whether Park Lawn generated enough free cash flow to afford its dividend. It distributed 32% of its free cash flow as dividends, a comfortable payout level for most companies.

It's disappointing to see that the dividend was not covered by profits, but cash is more important from a dividend sustainability perspective, and Park Lawn fortunately did generate enough cash to fund its dividend. If executives were to continue paying more in dividends than the company reported in profits, we'd view this as a warning sign. Very few companies are able to sustainably pay dividends larger than their reported earnings.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

historic-dividend
historic-dividend

Have Earnings And Dividends Been Growing?

Stocks with flat earnings can still be attractive dividend payers, but it is important to be more conservative with your approach and demand a greater margin for safety when it comes to dividend sustainability. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. That explains why we're not overly excited about Park Lawn's flat earnings over the past five years. We'd take that over an earnings decline any day, but in the long run, the best dividend stocks all grow their earnings per share.

The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Park Lawn's dividend payments per share have declined at 3.3% per year on average over the past 10 years, which is uninspiring.

Final Takeaway

Has Park Lawn got what it takes to maintain its dividend payments? Park Lawn's earnings per share are effectively flat, and it is paying out just 32% of its cash flow but 102% of its income. In summary, while it has some positive characteristics, we're not inclined to race out and buy Park Lawn today.

If you're not too concerned about Park Lawn's ability to pay dividends, you should still be mindful of some of the other risks that this business faces. For example - Park Lawn has 2 warning signs we think you should be aware of.

We wouldn't recommend just buying the first dividend stock you see, though. Here's a list of interesting 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.