Perenti Global Limited (ASX:PRN) is reducing its dividend to AU$0.02 on the 20th of October. This means that the dividend yield is 6.5%, which is a bit low when comparing to other companies in the industry.
Perenti Global Might Find It Hard To Continue The Dividend
If it is predictable over a long period, even low dividend yields can be attractive. Perenti Global is unprofitable despite paying a dividend, and it is paying out 160% of its free cash flow. This makes us feel that the dividend will be hard to maintain.
Looking forward, earnings per share could 26.7% over the next year if the trend of the last few years can't be broken. This will push the company into unprofitability, which means the managers will have to choose between suspending the dividend, or paying it out of cash reserves.
While the company has been paying a dividend for a long time, it has cut the dividend at least once in the last 10 years. The dividend has gone from AU$0.12 in 2011 to the most recent annual payment of AU$0.04. The dividend has fallen 67% over that period. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend Has Limited Growth Potential
Given that the track record hasn't been stellar, we really want to see earnings per share growing over time. Perenti Global's EPS has fallen by approximately 27% per year during the past five years. 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.
Perenti Global's Dividend Doesn't Look Great
Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. The company isn't making enough to be paying as much as it is, and the other factors don't look particularly promising either. Overall, this doesn't get us very excited from an income standpoint.
Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we've identified 1 warning sign for Perenti Global that you should be aware of before investing. 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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