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 1st of April to AU$1.12. This will take the dividend yield to an attractive 5.8%, providing a nice boost to shareholder returns.

Check out our latest analysis for Perpetual

Perpetual's Earnings Easily Cover the Distributions

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Prior to this announcement, the company was paying out 110% of what it was earning. This situation certainly isn't ideal, and could place significant strain on the balance sheet if it continues.

Earnings per share is forecast to rise by 16.8% over the next year. Assuming the dividend continues along recent trends, our estimates say the payout ratio could reach 88%. This is definitely on the higher side, but we wouldn't necessarily say this is unsustainable.

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ASX:PPT Historic Dividend February 27th 2022

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the dividend has gone from AU$1.80 to AU$2.24. This means that it has been growing its distributions at 2.2% per annum over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Dividend Growth Is Doubtful

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Perpetual's earnings per share has fallen at approximately 8.3% per year over the past five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. Earnings are forecast to grow over the next 12 months and if that happens we could still be a little bit cautious until it becomes a pattern.

Perpetual's Dividend Doesn't Look Great

Overall, while the dividend being raised can be good, there are some concerns about its long term sustainability. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. The dividend doesn't inspire confidence that it will provide solid income in the future.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. Taking the debate a bit further, we've identified 1 warning sign for Perpetual that investors need to be conscious of moving forward. Looking for more high-yielding dividend ideas? Try our collection of strong dividend payers.

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