It looks like Paramount Group, Inc. (NYSE:PGRE) is about to go ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 27th of September will not receive the dividend, which will be paid on the 15th of October.
Paramount Group’s next dividend payment will be US$0.1 per share. Last year, in total, the company distributed US$0.4 to shareholders. Based on the last year’s worth of payments, Paramount Group stock has a trailing yield of around 3.1% on the current share price of $13.09. If you buy this business for its dividend, you should have an idea of whether Paramount Group’s dividend is reliable and sustainable. As a result, readers should always check whether Paramount Group has been able to grow its dividends, or if the dividend might be cut.
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Paramount Group paid out a comfortable 47% of its profit last year. That said, REITs are often required by law to distribute all of their earnings, and it’s not unusual to see a REIT with a payout ratio around 100%. We wouldn’t read too much into this. 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. It paid out more than half (67%) of its free cash flow in the past year, which is within an average range for most companies.
It’s encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don’t drop precipitously.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. With that in mind, we’re encouraged by the steady growth at Paramount Group, with earnings per share up 3.0% on average over the last five years. Earnings per share growth has been slim, and the company is already paying out a majority of its earnings. While there is some room to both increase the payout ratio and reinvest in the business, generally the higher a payout ratio goes, the lower a company’s prospects for future growth.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last five years, Paramount Group has lifted its dividend by approximately 1.0% a year on average.
To Sum It Up
Should investors buy Paramount Group for the upcoming dividend? Earnings per share growth has been modest, and it’s interesting that Paramount Group is paying out less than half of its earnings and more than half its cash flow to shareholders in the form of dividends. In summary, while it has some positive characteristics, we’re not inclined to race out and buy Paramount Group today.
Wondering what the future holds for Paramount Group? See what the six analysts we track are forecasting, with this visualisation of its historical and future estimated earnings and cash flow
We wouldn’t recommend just buying the first dividend stock you see, though. Here’s a list of interesting dividend stocks with a greater than 2% yield and an upcoming dividend.
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