Pizza Pizza Royalty (TSE:PZA) Is Increasing Its Dividend To CA$0.068

Pizza Pizza Royalty Corp.'s (TSE:PZA) dividend will be increasing on the 15th of July to CA$0.068, with investors receiving 23% more than last year. This will take the dividend yield to an attractive 5.9%, providing a nice boost to shareholder returns.

See our latest analysis for Pizza Pizza Royalty

Pizza Pizza Royalty Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. At the time of the last dividend payment, Pizza Pizza Royalty was paying out a very large proportion of what it was earning and 99% 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.

If the company can't turn things around, EPS could fall by 2.5% over the next year. If the dividend continues along recent trends, we estimate the payout ratio could reach 97%, which could put the dividend in jeopardy if the company's earnings don't improve.

Pizza Pizza Royalty Has A Solid Track Record

The company has a sustained record of paying dividends with very little fluctuation. Since 2012, the dividend has gone from CA$0.70 to CA$0.78. This means that it has been growing its distributions at 1.1% per annum over that time. While the consistency in the dividend payments is impressive, we think the relatively slow rate of growth is less attractive.

The Dividend's Growth Prospects Are Limited

The company's investors will be pleased to have been receiving dividend income for some time. Let's not jump to conclusions as things might not be as good as they appear on the surface. Over the past five years, it looks as though Pizza Pizza Royalty's EPS has declined at around 2.5% a year. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

Pizza Pizza Royalty's Dividend Doesn't Look Sustainable

Overall, we always like to see the dividend being raised, but we don't think Pizza Pizza Royalty will make a great income stock. In the past the payments have been stable, but we think the company is paying out too much for this to continue for the long term. This company is not in the top tier of income providing stocks.

Investors generally tend to favour companies with a consistent, stable dividend policy as opposed to those operating an irregular one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. As an example, we've identified 2 warning signs for Pizza Pizza Royalty that you should be aware of before investing. Is Pizza Pizza Royalty 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.