Perenti Global (ASX:PRN) Will Pay A Smaller Dividend Than Last Year

Perenti Global Limited (ASX:PRN) is reducing its dividend to AU$0.02 on the 20th of October. However, the dividend yield of 6.7% still remains in a typical range for the industry.

View our latest analysis for Perenti Global

Perenti Global Might Find It Hard To Continue The Dividend

We aren't too impressed by dividend yields unless they can be sustained over time. 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.

Over the next year, EPS might fall by 26.7% based on recent performance. 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.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut 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. Declining dividends isn't generally what we look for as they can indicate that the company is running into some challenges.

Dividend Growth Potential Is Shaky

Dividends have been going in the wrong direction, so we definitely want to see a different trend in the earnings per share. Over the past five years, it looks as though Perenti Global's EPS has declined at around 27% a year. A sharp decline in earnings per share is not great from from a dividend perspective. Even conservative payout ratios can come under pressure if earnings fall far enough.

We're Not Big Fans Of Perenti Global's Dividend

To sum up, we don't like when dividends are cut, but in this case the dividend may have been too high to begin with. The company's earnings aren't high enough to be making such big distributions, and it isn't backed up by strong growth or consistency either. Overall, the dividend is not reliable enough to make this a good income stock.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've picked out 1 warning sign for Perenti Global that investors should know about before committing capital to this stock. We have also put together a list of global stocks with a solid dividend.

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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.
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