Perenti Global's (ASX:PRN) Shareholders Will Receive A Smaller Dividend Than Last Year

By
Simply Wall St
Published
September 28, 2021
ASX:PRN
Source: Shutterstock

Perenti Global Limited (ASX:PRN) is reducing its dividend to AU$0.02 on the 20th of October. This payment takes the dividend yield to 6.5%, which only provides a modest boost to overall returns.

See our latest analysis for Perenti Global

Perenti Global Might Find It Hard To Continue The Dividend

Even a low dividend yield can be attractive if it is sustained for years on end. Perenti Global is unprofitable despite paying a dividend, and it is paying out 160% of its free cash flow. This is quite a strong warning sign that the dividend may not be sustainable.

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.

historic-dividend
ASX:PRN Historic Dividend September 28th 2021

Dividend Volatility

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 first annual payment during the last 10 years was AU$0.12 in 2011, and the most recent fiscal year payment was AU$0.04. This works out to a decline of approximately 67% over that time. 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. Perenti Global's EPS has fallen by approximately 27% per year during the past five years. Such rapid declines definitely have the potential to constrain dividend payments if the trend continues into the future.

Perenti Global's Dividend Doesn't Look Great

In summary, it's not great to see that the dividend is being cut, but it is probably understandable given that the current payment level was quite high. The company seems to be stretching itself a bit to make such big payments, but it doesn't appear they can be consistent over time. We don't think that this is a great candidate to be an income stock.

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. As an example, we've identified 1 warning sign for Perenti Global that you should be aware of before investing. We have also put together a list of global stocks with a solid dividend.

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