We Wouldn't Be Too Quick To Buy Polaris Inc. (NYSE:PII) Before It Goes Ex-Dividend
It looks like Polaris Inc. (NYSE:PII) is about to go ex-dividend in the next four days. This means that investors who purchase shares on or after the 31st of August will not receive the dividend, which will be paid on the 15th of September.
Polaris's next dividend payment will be US$0.62 per share. Last year, in total, the company distributed US$2.48 to shareholders. Based on the last year's worth of payments, Polaris has a trailing yield of 2.4% on the current stock price of $103.65. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for Polaris
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Polaris reported a loss last year, so it's not great to see that it has continued paying a dividend. With the recent loss, it's important to check if the business generated enough cash to pay its dividend. If Polaris didn't generate enough cash to pay the dividend, then it must have either paid from cash in the bank or by borrowing money, neither of which is sustainable in the long term. Fortunately, it paid out only 27% of its free cash flow in the past year.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
When earnings decline, dividend companies become much harder to analyse and own safely. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Polaris reported a loss last year, and the general trend suggests its earnings have also been declining in recent years, making us wonder if the dividend is at risk.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Polaris has lifted its dividend by approximately 12% a year on average.
Remember, you can always get a snapshot of Polaris's financial health, by checking our visualisation of its financial health, here.
The Bottom Line
Should investors buy Polaris for the upcoming dividend? First, it's not great to see the company paying a dividend despite being loss-making over the last year. On the plus side, the dividend was covered by free cash flow." It's not an attractive combination from a dividend perspective, and we're inclined to pass on this one for the time being.
With that being said, if you're still considering Polaris as an investment, you'll find it beneficial to know what risks this stock is facing. For example, we've found 3 warning signs for Polaris (1 is potentially serious!) that deserve your attention before investing in the shares.
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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