Propel Funeral Partners (ASX:PFP) Is Increasing Its Dividend To A$0.072

The board of Propel Funeral Partners Limited (ASX:PFP) has announced that the dividend on 5th of April will be increased to A$0.072, which will be 1.4% higher than last year's payment of A$0.071 which covered the same period. This makes the dividend yield about the same as the industry average at 2.6%.

View our latest analysis for Propel Funeral Partners

Propel Funeral Partners' Payment Has Solid Earnings Coverage

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Prior to this announcement, the company was paying out 98% of what it was earning. It will be difficult to sustain this level of payout so we wouldn't be confident about this continuing.

Looking forward, earnings per share is forecast to rise by 43.4% over the next year. Assuming the dividend continues along the course it has been charting recently, our estimates show the payout ratio being 68% which brings it into quite a comfortable range.

Propel Funeral Partners Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 5 years of history we want to see a few more years of history before making any solid conclusions. Since 2019, the annual payment back then was A$0.064, compared to the most recent full-year payment of A$0.14. This works out to be a compound annual growth rate (CAGR) of approximately 17% a year 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.

The Dividend's Growth Prospects Are Limited

Investors who have held shares in the company for the past few years will be happy with the dividend income they have received. Unfortunately, Propel Funeral Partners' earnings per share has been essentially flat over the past five years, which means the dividend may not be increased each year. The earnings growth is anaemic, and the company is paying out 98% 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.

An additional note is that the company has been raising capital by issuing stock equal to 13% of shares outstanding in the last 12 months. 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 payments are bit high to be considered sustainable, and the track record isn't the best. We would probably look elsewhere for an income investment.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. However, there are other things to consider for investors when analysing stock performance. To that end, Propel Funeral Partners has 2 warning signs (and 1 which is potentially serious) we think you should know about. 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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