Propel Funeral Partners (ASX:PFP) Has Announced A Dividend Of A$0.072

The board of Propel Funeral Partners Limited (ASX:PFP) has announced that it will pay a dividend on the 3rd of October, with investors receiving A$0.072 per share. Based on this payment, the dividend yield for the company will be 2.4%, which is fairly typical for the industry.

Check out our latest analysis for Propel Funeral Partners

Propel Funeral Partners' Earnings Easily Cover The Distributions

We like to see a healthy dividend yield, but that is only helpful to us if the payment can continue. Prior to this announcement, the company was paying out 102% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

The next year is set to see EPS grow by 51.1%. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 67% which brings it into quite a comfortable range.

Propel Funeral Partners Is Still Building Its Track Record

Propel Funeral Partners' dividend has been pretty stable for a little while now, but we will continue to be cautious until it has been demonstrated for a few more years. The annual payment during the last 6 years was A$0.064 in 2018, and the most recent fiscal year payment was A$0.144. This means that it has been growing its distributions at 14% per annum over that time. Propel Funeral Partners has been growing its dividend quite rapidly, which is exciting. However, the short payment history makes us question whether this performance will persist across a full market cycle.

Propel Funeral Partners May Find It Hard To Grow The Dividend

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Propel Funeral Partners hasn't seen much change in its earnings per share over the last five years. The earnings growth is anaemic, and the company is paying out 102% of its profit. Limited recent earnings growth and a high payout ratio makes it hard for us to envision strong future dividend growth, unless the company should have substantial pricing power or some form of competitive advantage.

We should note that Propel Funeral Partners has issued stock equal to 17% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.

Propel Funeral Partners' Dividend Doesn't Look Sustainable

In summary, while it's always good to see the dividend being raised, we don't think Propel Funeral Partners' payments are rock solid. The track record isn't great, and the payments are a bit high to be considered sustainable. We don't think Propel Funeral Partners is a great stock to add to your portfolio if income is your focus.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Taking the debate a bit further, we've identified 1 warning sign for Propel Funeral Partners that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

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