There's A Lot To Like About PWR Holdings' (ASX:PWH) Upcoming AU$0.028 Dividend

Regular readers will know that we love our dividends at Simply Wall St, which is why it's exciting to see PWR Holdings Limited (ASX:PWH) is about to trade ex-dividend in the next 4 days. This means that investors who purchase shares on or after the 18th of March will not receive the dividend, which will be paid on the 26th of March.

PWR Holdings's next dividend payment will be AU$0.028 per share. Last year, in total, the company distributed AU$0.068 to shareholders. Calculating the last year's worth of payments shows that PWR Holdings has a trailing yield of 1.3% on the current share price of A$5.27. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

View 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. That's why it's good to see PWR Holdings paying out a modest 42% of its earnings. A useful secondary check can be to evaluate whether PWR Holdings generated enough free cash flow to afford its dividend. Fortunately, it paid out only 37% of its free cash flow in the past year.

It's positive to see that PWR Holdings's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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. Investors love dividends, so if earnings fall and the dividend is reduced, expect a stock to be sold off heavily at the same time. With that in mind, we're encouraged by the steady growth at PWR Holdings, with earnings per share up 8.2% on average over the last five years. The company is retaining more than half of its earnings within the business, and it has been growing earnings at a decent rate. We think this is generally an attractive combination, as dividends can grow through a combination of earnings growth and or a higher payout ratio over time.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past five years, PWR Holdings has increased its dividend at approximately 41% a year on average. It's encouraging to see the company lifting dividends while earnings are growing, suggesting at least some corporate interest in rewarding shareholders.

The Bottom Line

From a dividend perspective, should investors buy or avoid PWR Holdings? Earnings per share growth has been growing somewhat, and PWR Holdings is paying out less than half its earnings and cash flow as dividends. This is interesting for a few reasons, as it suggests management may be reinvesting heavily in the business, but it also provides room to increase the dividend in time. It might be nice to see earnings growing faster, but PWR Holdings is being conservative with its dividend payouts and could still perform reasonably over the long run. It's a promising combination that should mark this company worthy of closer attention.

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.

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.

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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.
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