Group (ASX:PTB) Is Increasing Its Dividend To AU$0.05

By
Simply Wall St
Published
September 26, 2021
ASX:PTB
Source: Shutterstock

PTB Group Limited (ASX:PTB) will increase its dividend on the 29th of October to AU$0.05. This makes the dividend yield 5.0%, which is above the industry average.

While the dividend yield is important for income investors, it is also important to consider any large share price moves, as this will generally outweigh any gains from distributions. Investors will be pleased to see that Group's stock price has increased by 37% in the last 3 months, which is good for shareholders and can also explain a decrease in the dividend yield.

See our latest analysis for Group

Group's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment was quite easily covered by earnings, but it made up 104% of cash flows. The company might be more focused on returning cash to shareholders, but paying out this much of its cash flow could expose the dividend to being cut in the future.

Over the next year, EPS is forecast to fall by 26.9%. If the dividend continues along recent trends, we estimate the payout ratio could be 66%, which we consider to be quite comfortable, with most of the company's earnings left over to grow the business in the future.

historic-dividend
ASX:PTB Historic Dividend September 26th 2021

Group's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. Due to this, we are a little bit cautious about the dividend consistency over a full economic cycle. The dividend has gone from AU$0.051 in 2013 to the most recent annual payment of AU$0.05. The dividend has shrunk at a rate of less than 1% a year over this period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend Looks Likely To Grow

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. We are encouraged to see that Group has grown earnings per share at 11% per year over the past five years. The company is paying out a lot of its cash as a dividend, but it looks okay based on the payout ratio.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Group will make a great income stock. While Group is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Just as an example, we've come across 6 warning signs for Group you should be aware of, and 1 of them is significant. We have also put together a list of global stocks with a solid dividend.

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