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Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see Premier, Inc. (NASDAQ:PINC) is about to trade ex-dividend in the next four 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. Therefore, if you purchase Premier's shares on or after the 30th of November, you won't be eligible to receive the dividend, when it is paid on the 15th of December.
The company's next dividend payment will be US$0.20 per share, and in the last 12 months, the company paid a total of US$0.80 per share. Based on the last year's worth of payments, Premier has a trailing yield of 2.0% on the current stock price of $39.35. If you buy this business for its dividend, you should have an idea of whether Premier's dividend is reliable and sustainable. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.
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. That's why it's good to see Premier paying out a modest 36% of its earnings. A useful secondary check can be to evaluate whether Premier generated enough free cash flow to afford its dividend. Thankfully its dividend payments took up just 27% of the free cash flow it generated, which is a comfortable payout ratio.
It's positive to see that Premier'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.
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. Premier's earnings per share have plummeted approximately 35% a year over the previous five years.
Unfortunately Premier has only been paying a dividend for a year or so, so there's not much of a history to draw insight from.
The Bottom Line
Is Premier worth buying for its dividend? Earnings per share are down meaningfully, although at least the company is paying out a low and conservative percentage of both its earnings and cash flow. It's definitely not great to see earnings falling, but at least there may be some buffer before the dividend needs to be cut. It might be worth researching if the company is reinvesting in growth projects that could grow earnings and dividends in the future, but for now we're not all that optimistic on its dividend prospects.
So while Premier looks good from a dividend perspective, it's always worthwhile being up to date with the risks involved in this stock. To help with this, we've discovered 2 warning signs for Premier (1 shouldn't be ignored!) that you ought to be aware of before buying the shares.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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.
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