Stock Analysis

Pental (ASX:PTL) Is Paying Out A Dividend Of A$0.013

ASX:PTL
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The board of Pental Limited (ASX:PTL) has announced that it will pay a dividend on the 22nd of March, with investors receiving A$0.013 per share. Based on this payment, the dividend yield on the company's stock will be 8.3%, which is an attractive boost to shareholder returns.

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Pental's Dividend Is Well Covered By Earnings

If the payments aren't sustainable, a high yield for a few years won't matter that much. Prior to this announcement, Pental's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 164% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Looking forward, earnings per share is forecast to rise by 52.0% over the next year. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 61% which would be quite comfortable going to take the dividend forward.

historic-dividend
ASX:PTL Historic Dividend February 18th 2023

Pental's Dividend Has Lacked Consistency

Even in its relatively short history, the company has reduced the dividend at least once. This suggests that the dividend might not be the most reliable. Since 2015, the annual payment back then was A$0.018, compared to the most recent full-year payment of A$0.03. This works out to be a compound annual growth rate (CAGR) of approximately 6.6% a year over that time. A reasonable rate of dividend growth is good to see, but we're wary that the dividend history is not as solid as we'd like, having been cut at least once.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. Pental hasn't seen much change in its earnings per share over the last five years.

Pental's Dividend Doesn't Look Sustainable

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Pental's payments, as there could be some issues with sustaining them into the future. The payments are bit high to be considered sustainable, and the track record isn't the best. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. Case in point: We've spotted 2 warning signs for Pental (of which 1 can't be ignored!) you should know about. Is Pental not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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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.