Some investors rely on dividends to grow their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that PEC Ltd. (SGX: IX2) is set to be ex-dividend in just three days. Typically, the ex-dividend date is one business day prior to the record date which is the date a company determines which shareholders are eligible to receive a dividend. The ex-dividend date is an important date to know, as any purchase of shares made on or after that date may mean a late settlement that does not appear on the record date. This means that you will have to buy PEC shares before November 11 to receive the dividend, which will be paid on November 24.
The company’s next dividend payment will be S $ 0.025 per share, compared to last year when the company paid a total of S $ 0.025 to shareholders. Last year’s total dividend payouts show that PEC has a rolling 4.2% return on the current share price of SGD 0.59. We love to see companies pay a dividend, but it’s also important to make sure that laying the golden eggs is not going to kill our goose that lays the golden eggs! So we need to determine whether PEC can afford its dividend and whether the dividend could increase.
See our latest analysis for PEC
Dividends are usually paid out of the company’s profits, so if a company pays more than it earned, its dividend is usually at risk of being reduced. Fortunately, PEC’s payout ratio is modest, at only 30% of profits. A useful secondary check may be to assess whether PEC has generated enough free cash flow to pay its dividend. Fortunately, he only paid 2.5% of his free cash flow last year.
It is encouraging to see that the dividend is covered by both earnings and cash flow. This usually suggests that the dividend is sustainable, as long as profits don’t drop sharply.
Click here to see how much of its profits PEC has paid off in the past 12 months.
Have profits and dividends increased?
Companies with consistently rising earnings per share usually make the best dividend-paying stocks because they generally find it easier to raise dividends per share. If profits fall enough, the company could be forced to cut its dividend. That’s why it’s a relief to see PEC’s earnings per share grow 2.1% per year over the past five years. Recent earnings growth has been limited. However, companies that see their growth slowing can often choose to pay a higher percentage of their profits to shareholders, which could see the dividend continue to rise.
Many investors will assess a company’s dividend yield by evaluating how much dividend payments have changed over time. PEC’s dividend payouts per share have declined 1.8% per year on average over the past 10 years, which is not inspiring.
Is PEC an attractive dividend-paying stock, or better, is it left on the shelf? Earnings per share growth has increased somewhat, and PEC pays less than half of its earnings and cash flow as dividends. This is interesting for several reasons, as it suggests that management may be reinvesting heavily in the company, but it also helps to increase the dividend over time. We’d rather see earnings grow faster, but the best long-term dividend-paying stocks typically combine significant earnings per share growth with a low payout ratio, and PEC is halfway there. Overall, we think this is an attractive combination worthy of further research.
On that note, you’ll want to research the risks that PEC faces. For example, PEC has 3 warning signs (and 1 which is a little worrying) we think you should be aware of.
However, we don’t recommend simply buying the first dividend stock you see. Here is a list of interesting dividend paying stocks with a yield above 2% and a dividend coming soon.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative material. Simply Wall St has no position in any of the stocks mentioned.
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