Pizza Pizza Royalty's (TSE:PZA) Shareholders Will Receive A Bigger Dividend Than Last Year

Pizza Pizza Royalty Corp. (TSE:PZA) has announced that it will be increasing its dividend on the 15th of September to CA$0.06. This takes the dividend yield from 5.8% to 5.9%, which shareholders will be pleased with.

See our latest analysis for Pizza Pizza Royalty

Pizza Pizza Royalty's Earnings Easily Cover the Distributions

If the payments aren't sustainable, a high yield for a few years won't matter that much. Before making this announcement, Pizza Pizza Royalty's was paying out quite a large proportion of earnings and 86% of free cash flows. This indicates that the company is more focused on returning cash to shareholders than growing the business, but we don't think that there are necessarily signs that the dividend might be unsustainable.

EPS is set to fall by 3.6% over the next 12 months if recent trends continue. If recent patterns in the dividend continue, we could see the payout ratio reaching 93% in the next 12 months which is on the higher end of the range we would say is sustainable.

Pizza Pizza Royalty's Track Record Isn't Great

The dividend hasn't seen any major cuts in the last 10 years, but it has slowly been decreasing. Since 2011, the dividend has gone from CA$0.93 to CA$0.65. Doing the maths, this is a decline of about 3.6% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.

The Dividend's Growth Prospects Are Limited

Growing earnings per share could be a mitigating factor when considering the past fluctuations in the dividend. It's not great to see that Pizza Pizza Royalty's earnings per share has fallen at approximately 3.6% per year over the past five years. Declining earnings will inevitably lead to the company paying a lower dividend in line with lower profits.

In Summary

In summary, while it's always good to see the dividend being raised, we don't think Pizza Pizza Royalty's payments are rock solid. Although they have been consistent in the past, we think the payments are a little high to be sustained. We don't think Pizza Pizza Royalty is a great stock to add to your portfolio if income is your focus.

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 Pizza Pizza Royalty that you should be aware of before investing. Looking for more high-yielding dividend ideas? Try our curated list of strong dividend payers.

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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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