Some investors rely on dividends for growing their wealth, and if you’re one of those dividend sleuths, you might be intrigued to know that PWR Holdings Limited (ASX:PWH) is about to go ex-dividend in just 4 days. Ex-dividend means that investors that purchase the stock on or after the 11th of September will not receive this dividend, which will be paid on the 19th of September.
The upcoming dividend for PWR Holdings is AU$0.099 per share, increased from last year’s total dividends per share of AU$0.085. We love seeing companies pay a dividend, but it’s also important to be sure that laying the golden eggs isn’t going to kill our golden goose! So we need to investigate whether PWR Holdings can afford its dividend, and if the dividend could grow.
Check out our latest analysis for PWR Holdings
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. PWR Holdings is paying out an acceptable 60% of its profit, a common payout level among most companies. A useful secondary check can be to evaluate whether PWR Holdings generated enough free cash flow to afford its dividend. Over the last year it paid out 62% of its free cash flow as dividends, within the usual 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.
Click here to see the company’s payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Businesses with strong growth prospects usually make the best dividend payers, because it’s easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, PWR Holdings’s earnings per share have been growing at 15% a year for the past five years. PWR Holdings is paying out a bit over half its earnings, which suggests the company is striking a balance between reinvesting in growth, and paying dividends. This is a reasonable combination that could hint at some further dividend increases in the future.
Another key way to measure a company’s dividend prospects is by measuring its historical rate of dividend growth. In the last four years, PWR Holdings has lifted its dividend by approximately 62% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.
The Bottom Line
Is PWR Holdings an attractive dividend stock, or better left on the shelf? It’s good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. However, we’d also note that PWR Holdings is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. To summarise, PWR Holdings looks okay on this analysis, although it doesn’t appear a stand-out opportunity.
Curious what other investors think of PWR Holdings? See what analysts are forecasting, with this visualisation of its historical and future estimated earnings and cash flow.
If you’re in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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. Thank you for reading.