Stock Analysis

Perpetual's (ASX:PPT) Upcoming Dividend Will Be Larger Than Last Year's

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ASX:PPT
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The board of Perpetual Limited (ASX:PPT) has announced that it will be increasing its dividend on the 24th of September to AU$0.96. This takes the dividend yield from 4.6% to 4.6%, which shareholders will be pleased with.

View our latest analysis for Perpetual

Perpetual's Payment Has Solid Earnings Coverage

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Based on the last payment, the dividend made up 94% of cash flows, but a higher proportion of net income. The company could be more focused on returning cash to shareholders, but this could indicate that growth opportunities are few and far between.

Earnings per share is forecast to rise by 48.7% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 85%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

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ASX:PPT Historic Dividend August 24th 2021

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. The first annual payment during the last 10 years was AU$2.00 in 2011, and the most recent fiscal year payment was AU$1.80. Doing the maths, this is a decline of about 1.0% per year. A company that decreases its dividend over time generally isn't what we are looking for.

The Dividend Has Limited Growth Potential

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Over the past five years, it looks as though Perpetual's EPS has declined at around 14% a year. This steep decline can indicate that the business is going through a tough time, which could constrain its ability to pay a larger dividend each year in the future. On the bright side, earnings are predicted to gain some ground over the next year, but until this turns into a pattern we wouldn't be feeling too comfortable.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Perpetual will make a great income stock. The track record isn't great, and the payments are a bit high to be considered sustainable. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. For instance, we've picked out 3 warning signs for Perpetual that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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