Pizza Pizza Royalty (TSE:PZA) Has Re-Affirmed Its Dividend Of CA$0.06

Pizza Pizza Royalty Corp. (TSE:PZA) will pay a dividend of CA$0.06 on the 14th of January. Based on this payment, the dividend yield on the company's stock will be 5.7%, which is an attractive boost to shareholder returns.

View our latest analysis for Pizza Pizza Royalty

Pizza Pizza Royalty Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last dividend made up a very large portion of earnings and also represented 92% of free cash flows. This is usually an indication that the focus of the company is returning cash to shareholders rather than reinvesting it for growth.

EPS is set to fall by 3.6% over the next 12 months if recent trends continue. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 96%, which is definitely a bit high to be sustainable going forward.

Pizza Pizza Royalty Has A Solid Track Record

The company has been paying a dividend for a long time, and it has been quite stable which gives us confidence in the future dividend potential. The dividend has gone from CA$0.70 in 2011 to the most recent annual payment of CA$0.69. Payments have been decreasing at a very slow pace in this time period. A company that decreases its dividend over time generally isn't what we are looking for.

Dividend Growth May Be Hard To Achieve

Investors could be attracted to the stock based on the quality of its payment history. Unfortunately things aren't as good as they seem. Over the past five years, it looks as though Pizza Pizza Royalty's EPS has declined at around 3.6% a year. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

In Summary

Overall, we don't think this company makes a great dividend stock, even though the dividend wasn't cut this year. We can't deny that the payments have been very stable, but we are a little bit worried about the very high payout ratio. We don't think Pizza Pizza Royalty is a great stock to add to your portfolio if income is your focus.

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 identified 2 warning signs for Pizza Pizza Royalty (1 is a bit unpleasant!) 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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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.