Yahoo Finance It Might Not Be A Great Idea To Buy PPHE Hotel Group Limited (LON:PPH) For Its Next Dividend
It looks like PPHE Hotel Group Limited (LON:PPH) is about to go ex-dividend in the next three days. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. In other words, investors can purchase PPHE Hotel Group's shares before the 27th of April in order to be eligible for the dividend, which will be paid on the 31st of May.
The company's upcoming dividend is UK£0.12 a share, following on from the last 12 months, when the company distributed a total of UK£0.24 per share to shareholders. Based on the last year's worth of payments, PPHE Hotel Group stock has a trailing yield of around 2.2% on the current share price of £11.15. If you buy this business for its dividend, you should have an idea of whether PPHE Hotel Group's dividend is reliable and sustainable. So we need to check whether the dividend payments are covered, and if earnings are growing.
See our latest analysis for PPHE Hotel Group
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. PPHE Hotel Group paid out 63% of its earnings to investors last year, a normal payout level for most businesses. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. PPHE Hotel Group paid a dividend despite reporting negative free cash flow last year. That's typically a bad combination and - if this were more than a one-off - not sustainable.
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. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we're discomforted by PPHE Hotel Group's 16% per annum decline in earnings in the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Many investors will assess a company's dividend performance by evaluating how much the dividend payments have changed over time. PPHE Hotel Group has delivered 7.2% dividend growth per year on average over the past 10 years. Growing the dividend payout ratio while earnings are declining can deliver nice returns for a while, but it's always worth checking for when the company can't increase the payout ratio any more - because then the music stops.
To Sum It Up
From a dividend perspective, should investors buy or avoid PPHE Hotel Group? PPHE Hotel Group had an average payout ratio, but its free cash flow was lower and earnings per share have been declining. With the way things are shaping up from a dividend perspective, we'd be inclined to steer clear of PPHE Hotel Group.
So if you're still interested in PPHE Hotel Group despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. We've identified 3 warning signs with PPHE Hotel Group (at least 1 which makes us a bit uncomfortable), and understanding them should be part of your investment process.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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