Readers hoping to buy People Infrastructure Ltd (ASX:PPE) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. Investors can purchase shares before the 27th of February in order to be eligible for this dividend, which will be paid on the 30th of March.
People Infrastructure's next dividend payment will be AU$0.04 per share. Last year, in total, the company distributed AU$0.085 to shareholders. Last year's total dividend payments show that People Infrastructure has a trailing yield of 2.3% on the current share price of A$3.7. 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! We need to see whether the dividend is covered by earnings and if it's growing.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. People Infrastructure paid out 58% of its earnings to investors last year, a normal payout level for most businesses. 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. Dividends consumed 70% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. With that in mind, it's good to see earnings have grown 5.2% on last year. While earnings have been growing at a credible rate, the company is paying out a majority of its earnings to shareholders. Therefore it's unlikely that the company will be able to reinvest heavily in its business, which could presage slower growth in the future.
One year is not very long in the grand scheme of things though, so we wouldn't draw too strong a conclusion based on these results.
People Infrastructure also issued more than 5% of its market cap in new stock during the past year, which we feel is likely to hurt its dividend prospects in the long run. Trying to grow the dividend while issuing large amounts of new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill.
Given that People Infrastructure has only been paying a dividend for a year, there's not much of a past history to draw insight from.
From a dividend perspective, should investors buy or avoid People Infrastructure? Earnings per share have been growing modestly and People Infrastructure paid out a bit over half of its earnings and free cash flow last year. All things considered, we are not particularly enthused about People Infrastructure from a dividend perspective.
Wondering what the future holds for People Infrastructure? 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.
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.
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