Yahoo Finance Why You Should Leave PZ Cussons Plc (LON:PZC)'s Upcoming Dividend On The Shelf
PZ Cussons Plc (LON:PZC) stock is about to trade ex-dividend in 2 days time. If you purchase the stock on or after the 13th of February, you won't be eligible to receive this dividend, when it is paid on the 6th of April.
PZ Cussons's upcoming dividend is UK£0.027 a share, following on from the last 12 months, when the company distributed a total of UK£0.083 per share to shareholders. Calculating the last year's worth of payments shows that PZ Cussons has a trailing yield of 4.3% on the current share price of £1.926. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether PZ Cussons has been able to grow its dividends, or if the dividend might be cut.
View our latest analysis for PZ Cussons
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. PZ Cussons paid out 93% of its earnings, which is more than we're comfortable with, unless there are mitigating circumstances. 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. It paid out 88% of its free cash flow as dividends, which is within usual limits but will limit the company's ability to lift the dividend if there's no growth.
It's good to see that while PZ Cussons's dividends were not well covered by profits, at least they are affordable from a cash perspective. Still, if the company continues paying out such a high percentage of its profits, the dividend could be at risk if business turns sour.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. Readers will understand then, why we're concerned to see PZ Cussons's earnings per share have dropped 16% a year over the past five years. Ultimately, when earnings per share decline, the size of the pie from which dividends can be paid, shrinks.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, ten years ago, PZ Cussons has lifted its dividend by approximately 4.6% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. PZ Cussons is already paying out 93% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.
Final Takeaway
From a dividend perspective, should investors buy or avoid PZ Cussons? Earnings per share have been shrinking in recent times. Worse, PZ Cussons's paying out a majority of its earnings and more than half its free cash flow. Positive cash flows are good news but it's not a good combination. Bottom line: PZ Cussons has some unfortunate characteristics that we think could lead to sub-optimal outcomes for dividend investors.
Ever wonder what the future holds for PZ Cussons? See what the four analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
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.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
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