Pizza Pizza Royalty's (TSE:PZA) Dividend Will Be Increased To CA$0.065

The board of Pizza Pizza Royalty Corp. (TSE:PZA) has announced that it will be increasing its dividend on the 14th of April to CA$0.065. This makes the dividend yield 5.1%, which is above the industry average.

View our latest analysis for Pizza Pizza Royalty

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

A big dividend yield for a few years doesn't mean much if it can't be sustained. Prior to this announcement, Pizza Pizza Royalty's dividend was making up a very large proportion of earnings and perhaps more concerning was that it was 101% of cash flows. Paying out such a high proportion of cash flows can expose the business to needing to cut the dividend if the business runs into some challenges.

Looking forward, EPS could fall by 3.0% if the company can't turn things around from the last few years. If the dividend continues along recent trends, we estimate the payout ratio could reach 96%, 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 an extended history of paying stable dividends. Since 2012, the dividend has gone from CA$0.70 to CA$0.78. This works out to be a compound annual growth rate (CAGR) of approximately 1.1% a year over that time. Dividends have grown relatively slowly, which is not great, but some investors may value the relative consistency of the dividend.

The Dividend's Growth Prospects Are Limited

Investors could be attracted to the stock based on the quality of its payment history. However, things aren't all that rosy. Pizza Pizza Royalty has seen earnings per share falling at 3.0% per year over the last five years. If the company is making less over time, it naturally follows that it will also have to pay out less in dividends.

The Dividend Could Prove To Be Unreliable

Overall, we always like to see the dividend being raised, but we don't think Pizza Pizza Royalty will make a great income stock. Although they have been consistent in the past, we think the payments are a little high to be sustained. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. However, there are other things to consider for investors when analysing stock performance. Taking the debate a bit further, we've identified 2 warning signs for Pizza Pizza Royalty that investors need to be conscious of moving forward. If you are a dividend investor, you might also want to look at our curated list of high yield 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.