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 People Infrastructure Ltd (ASX:PPE) is about to go ex-dividend in just 3 days. This means that investors who purchase shares on or after the 5th of September will not receive the dividend, which will be paid on the 2nd of October.
People Infrastructure’s next dividend payment will be AU$0.045 per share, on the back of last year when the company paid a total of AU$0.09 to shareholders. Last year’s total dividend payments show that People Infrastructure has a trailing yield of 2.6% on the current share price of A$3.45. 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 check whether the dividend payments are covered, and if earnings are growing.
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. People Infrastructure paid out more than half (57%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether People Infrastructure generated enough free cash flow to afford its dividend. Fortunately, it paid out only 46% of its free cash flow in the past year.
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?
Stocks in companies that generate sustainable earnings growth often make the best dividend prospects, as it is easier to lift the dividend when earnings are rising. If business enters a downturn and the dividend is cut, the company could see its value fall precipitously. For that reason, it’s encouraging to see People Infrastructure’s earnings over the past year have risen 38%. While we’d be remiss not to point out that a year is a very short time in dividend investing, it’s an encouraging sign so far. The current payout ratio suggests a good balance between rewarding shareholders with dividends, and reinvesting in growth. With a reasonable payout ratio, profits being reinvested, and some earnings growth, People Infrastructure could have strong prospects for future increases to the dividend.
We do note though, one year is too short a time to be drawing strong conclusions about a company’s future growth prospects.
We’d also point out that People Infrastructure issued a meaningful number of new shares in the past year. It’s hard to grow dividends per share when a company keeps creating new shares.
Given that People Infrastructure has only been paying a dividend for a year, there’s not much of a past history to draw insight from.
Is People Infrastructure an attractive dividend stock, or better left on the shelf? We like People Infrastructure’s growing earnings per share and the fact that – while its payout ratio is around average – it paid out a lower percentage of its cash flow. There’s a lot to like about People Infrastructure, and we would prioritise taking a closer look at it.
Curious what other investors think of People Infrastructure? See what analysts 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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If you spot an error that warrants correction, please contact the editor at email@example.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.