- Oops!Something went wrong.Please try again later.
Premium Brands Holdings Corporation (TSE:PBH) will increase its dividend on the 15th of July to CA$0.64. This makes the dividend yield about the same as the industry average at 2.0%.
Premium Brands Holdings' Earnings Easily Cover the Distributions
We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Based on the last payment, Premium Brands Holdings' profits didn't cover the dividend, but the company was generating enough cash instead. Given that the dividend is a cash outflow, we think that cash is more important than accounting measures of profit when assessing the dividend, so this is a mitigating factor.
Looking forward, earnings per share is forecast to rise by 78.5% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 66% which brings it into quite a comfortable range.
Premium Brands Holdings Has A Solid Track Record
The company has an extended history of paying stable dividends. The first annual payment during the last 10 years was CA$1.18 in 2011, and the most recent fiscal year payment was CA$2.54. This works out to be a compound annual growth rate (CAGR) of approximately 8.0% a year over that time. Companies like this can be very valuable over the long term, if the decent rate of growth can be maintained.
Premium Brands Holdings' Dividend Might Lack Growth
Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. We are encouraged to see that Premium Brands Holdings has grown earnings per share at 21% per year over the past five years. EPS has been growing well, but Premium Brands Holdings has been paying out a massive proportion of its earnings, which can make the dividend tough to maintain.
The company has also been raising capital by issuing stock equal to 17% of shares outstanding in the last 12 months. Regularly doing this can be detrimental - it's hard to grow dividends per share when new shares are regularly being created.
In summary, while it's always good to see the dividend being raised, we don't think Premium Brands Holdings' payments are rock solid. The company is generating plenty of cash, but we still think the dividend is a bit high for comfort. We would probably look elsewhere for an income investment.
Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. For example, we've picked out 3 warning signs for Premium Brands Holdings that investors should know about before committing capital to this stock. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.
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. 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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.