Propel Funeral Partners Limited (ASX:PFP) Is About To Go Ex-Dividend, And It Pays A 4.0% Yield

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 Propel Funeral Partners Limited (ASX:PFP) is about to go ex-dividend in just four days. If you purchase the stock on or after the 8th of March, you won't be eligible to receive this dividend, when it is paid on the 9th of April.

Propel Funeral Partners's upcoming dividend is AU$0.06 a share, following on from the last 12 months, when the company distributed a total of AU$0.12 per share to shareholders. Based on the last year's worth of payments, Propel Funeral Partners has a trailing yield of 4.0% on the current stock price of A$3.035. Dividends are an important source of income to many shareholders, but the health of the business is crucial to maintaining those dividends. As a result, readers should always check whether Propel Funeral Partners has been able to grow its dividends, or if the dividend might be cut.

See our latest analysis for Propel Funeral Partners

Dividends are typically paid from company earnings. If a company pays more in dividends than it earned in profit, then the dividend could be unsustainable. Its dividend payout ratio is 77% of profit, which means the company is paying out a majority of its earnings. The relatively limited profit reinvestment could slow the rate of future earnings growth. We'd be worried about the risk of a drop in earnings. Yet cash flows are even more important than profits for assessing a dividend, so we need to see if the company generated enough cash to pay its distribution. It paid out more than half (63%) of its free cash flow in the past year, which is within an average range for most companies.

It's positive to see that Propel Funeral Partners's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

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 earnings fall far enough, the company could be forced to cut its dividend. Fortunately for readers, Propel Funeral Partners's earnings per share have been growing at 12% a year for the past five years. It paid out more than three-quarters of its earnings in the last year, even though earnings per share are growing rapidly. We're surprised that management has not elected to reinvest more in the business to accelerate growth further.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the last three years, Propel Funeral Partners has lifted its dividend by approximately 23% a year on average. It's exciting to see that both earnings and dividends per share have grown rapidly over the past few years.

To Sum It Up

Should investors buy Propel Funeral Partners for the upcoming dividend? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. That's why we're glad to see Propel Funeral Partners's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 77% and 63% respectively. In summary, while it has some positive characteristics, we're not inclined to race out and buy Propel Funeral Partners today.

While it's tempting to invest in Propel Funeral Partners for the dividends alone, you should always be mindful of the risks involved. To help with this, we've discovered 2 warning signs for Propel Funeral Partners that you should be aware of before investing in their shares.

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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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. 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.
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