Propel Funeral Partners (ASX:PFP) Will Pay A Larger Dividend Than Last Year At A$0.074

Propel Funeral Partners Limited (ASX:PFP) will increase its dividend from last year's comparable payment on the 4th of April to A$0.074. The payment will take the dividend yield to 2.7%, which is in line with the average for the industry.

Check out our latest analysis for Propel Funeral Partners

Propel Funeral Partners' Projected Earnings Seem Likely To Cover Future Distributions

We like a dividend to be consistent over the long term, so checking whether it is sustainable is important. Before making this announcement, Propel Funeral Partners was paying out quite a large proportion of both earnings and cash flow, with the dividend being 1,004% of cash flows. This is certainly a risk factor, as reduced cash flows could force the company to pay a lower dividend.

Looking forward, earnings per share is forecast to rise by 29.2% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 67% which would be quite comfortable going to take the dividend forward.

Propel Funeral Partners Is Still Building Its Track Record

The dividend's track record has been pretty solid, but with only 6 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$0.148. This implies that the company grew its distributions at a yearly rate of about 15% over that duration. 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.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. Propel Funeral Partners has impressed us by growing EPS at 10% per year over the past five years. The payout ratio is very much on the higher end, which could mean that the growth rate will slow down in the future, and that could flow through to the dividend as well.

An additional note is that the company has been raising capital by issuing stock equal to 17% 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

Overall, we always like to see the dividend being raised, but we don't think Propel Funeral Partners will make a great income stock. Strong earnings growth means Propel Funeral Partners has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. We would be a touch cautious of relying on this stock primarily for the dividend income.

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. For example, we've identified 2 warning signs for Propel Funeral Partners (1 is a bit unpleasant!) that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.