Don't Buy Pengana Capital Group Limited (ASX:PCG) For Its Next Dividend Without Doing These Checks

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 Pengana Capital Group Limited (ASX:PCG) is about to go ex-dividend in just 2 days. You will need to purchase shares before the 4th of March to receive the dividend, which will be paid on the 19th of March.

Pengana Capital Group's next dividend payment will be AU$0.05 per share, on the back of last year when the company paid a total of AU$0.08 to shareholders. Last year's total dividend payments show that Pengana Capital Group has a trailing yield of 7.0% on the current share price of A$1.85. 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 investigate whether Pengana Capital Group can afford its dividend, and if the dividend could grow.

Check out our latest analysis for Pengana Capital Group

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. Last year, Pengana Capital Group paid out 110% of its income as dividends, which is above a level that we're comfortable with, especially if the company needs to reinvest in its business.

When the dividend payout ratio is high, as it is in this case, the dividend is usually at greater risk of being cut in the future.

Click here to see how much of its profit Pengana Capital Group paid out over the last 12 months.

Have Earnings And Dividends Been Growing?

Businesses with shrinking earnings are tricky from a dividend perspective. If earnings fall far enough, the company could be forced to cut its dividend. Pengana Capital Group's earnings per share have plummeted approximately 33% a year over the previous five years.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. In the past four years, Pengana Capital Group has increased its dividend at approximately 30% a year on average. That's intriguing, but the combination of growing dividends despite declining earnings can typically only be achieved by paying out a larger percentage of profits. Pengana Capital Group is already paying out 110% of its profits, and with shrinking earnings we think it's unlikely that this dividend will grow quickly in the future.

Final Takeaway

Has Pengana Capital Group got what it takes to maintain its dividend payments? Not only are earnings per share shrinking, but Pengana Capital Group is paying out a disconcertingly high percentage of its profit as dividends. It's not that we hate the business, but we feel that these characeristics are not desirable for investors seeking a reliable dividend stock to own for the long term. All things considered, we're not optimistic about its dividend prospects, and would be inclined to leave it on the shelf for now.

With that in mind though, if the poor dividend characteristics of Pengana Capital Group don't faze you, it's worth being mindful of the risks involved with this business. For example - Pengana Capital Group has 2 warning signs we think you should be aware of.

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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