Yahoo Finance Don't Buy PSP Swiss Property AG (VTX:PSPN) For Its Next Dividend Without Doing These Checks
Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that PSP Swiss Property AG (VTX:PSPN) is about to go ex-dividend in just three days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. This means that investors who purchase PSP Swiss Property's shares on or after the 8th of April will not receive the dividend, which will be paid on the 10th of April.
The company's next dividend payment will be CHF03.85 per share, and in the last 12 months, the company paid a total of CHF3.85 per share. Looking at the last 12 months of distributions, PSP Swiss Property has a trailing yield of approximately 3.2% on its current stock price of CHF0119.20. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
See our latest analysis for PSP Swiss Property
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. Its dividend payout ratio is 85% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. 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. Over the last year it paid out 63% of its free cash flow as dividends, within the usual range for most companies.
It's positive to see that PSP Swiss Property's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with falling earnings are riskier for dividend shareholders. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. PSP Swiss Property's earnings per share have fallen at approximately 7.6% a year over the previous five years. Such a sharp decline casts doubt on the future sustainability of the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. In the last 10 years, PSP Swiss Property has lifted its dividend by approximately 1.7% a year on average.
Final Takeaway
Is PSP Swiss Property an attractive dividend stock, or better left on the shelf? While earnings per share are shrinking, it's encouraging to see that at least PSP Swiss Property's dividend appears sustainable, with earnings and cashflow payout ratios that are within reasonable bounds. Bottom line: PSP Swiss Property has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
With that in mind though, if the poor dividend characteristics of PSP Swiss Property don't faze you, it's worth being mindful of the risks involved with this business. Be aware that PSP Swiss Property is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning...
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.
